Question

Use the data in the following table for the next seven questions. Note that "%∆" is shorthand for "percentage change." If the answer is a percentage, please just enter the number. Thus, say an answer of yours is 3.5%, then below you would enter "3.5" (without the quotes) in the box below. Be careful not to include the percent symbol. Also, please use just one decimal place.

year	real GDP (trillions)	nominal GDP (trillions)	CPI	%∆CPI from the previous year	nominal price of 1 apple	mortgage interest rate
1990	$14.80	$12.10	130	4.0%	$0.50	8%
2000	$16.60	$16.40	205	1.5%	$0.60	5%
2010	$18.20	$19.75	230	2.0%	$0.75	6%
2019	$20.00	$22.00	250	3.5%	$0.95	7%
2020	$20.40	$22.85	260	4.0%	$1.00	6%

Q1: Is the rate of inflation for consumers from 2019 to 2020 correct? Yes or NO

What was the rate of economic growth from 2019 to 2020? (As in the directions above, just enter the percent number, such as 3.5 for 3.5%).

What was the inflation rate for the entire economy from 2019 to 2020?

Q2: What was the real interest rate for a consumer purchasing a house in 2020? They'll be taking out a home loan, often called a mortgage.

Please convert the nominal price for an apple from 1990 to the prices of 2020. Assume that a consumer purchases it.

What was the percentage change in the real price of apples from 2019 to 2020 for consumers?

Deflate the nominal price of apples from 2020 for consumers (that is, convert the 2020 nominal price to the base year of the CPI). Please use two decimal place for this answer.

Answer 1

1) Yes

Rate of Growth = ((Final Value / Initial Value) - 1) * 100

CPI value was 250 in 2019 and 260 in 2020

(260 / 250) - 1
= 1.04 - 1
= 0.04 or 4%

2) The real interest rate can be calculated by subtracting the inflation rate

In the year 2020, mortgage rate is 6% while inflation is 4%

6% - 4% = 2%
The real rate of mortgage loan is 2%

3) The nominal price can be calculated using CPI value.
The nominal price of an apple was $0.5 while CPI was 130.
The CPI has been 260 in the year 2020.

(260 * 0.5) / 130 = 1.00

The nominal price of an apple in 2020 should be $1.00

4) The nominal percentage change in the price of an apple

((1.00 / 0.95) - 1) = 0.0526 or 5.26%

The real percentage change in the price of an apple

5.26 - 4.00 = 1.26

The real change is around 1.26%

5) The base year CPI value is considered as 100.
The price of an apple in the year 2020 is $1.00 while CPI value is 260.

(100 * 1) / 260 = 0.38

The deflated price of an apple in the base year is $0.38