As a Result of Changes in the Tax Laws in the Late

question 128

Essay

As a result of changes in the tax laws in the late 1980s, interest payments on consumer loans were no longer deductible. How should this change in the tax law affect the consumption expenditure line, assuming everything else held equal?

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Definitions:

Compounded

Interest calculated on the initial principal, which includes all of the accumulated interest from previous periods.

Post-secondary

Relating to education after high school, including college, university, and vocational or technical training.

Compounded

The process where interest earned on an investment is reinvested to earn additional interest over time.

Nominal Rate

The advertised or stated interest rate of an investment or loan, not accounting for compounding or inflation.