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
Given: nominal interest rate 7% real interest rate 4% end of the year CPI is 198.30 beginning of the year CPI?
nominal rate - real interest rate = 7% - 4% = 3%
end of the year CPI is the result of the beginning of the year CPI which increased by the difference in percentage of the nominal rate and real interest rate.
end of the year CPI = beginning of the year CPI * (1 + difference of nominal and real interest rate)
198.30 = beginning of the year CPI * (1+0.03) 198.30 / 1.03 = beginning of the year CPI 192.52 = beginning of the year CPI
The consumer price index (CPI) at the beginning of the year is 192.52
