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During a certain year, the nominal interest rate was 7 percent, the real interest rate was...

During a certain year, the nominal interest rate was 7 percent, the real interest rate was 4 percent, and the CPI was 198.3 at the end of the year. The CPI at the beginning of the year was Question 17 options:

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Answer #1

Rate of inflation = nominal interest rate - real interest rate = 7% - 4% = 3%

Rate of inflation = (CPI at the end of the year - CPI at the beginning of the year) x 100 / CPI at the beginning of the year

3% = (198.3 - CPI at the beginning of the year) x 100/CPI at the beginning of the year

3 x CPI at the beginning of the year = 19830 - 100 x CPI at the beginning of the year

CPI at the beginning of the year = 19830/103 = 192.52

Hence, CPI at the beginning of the year was 192.52.

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