If There Is a Decrease in the Expected Inflation Rate

question 32

Multiple Choice

If there is a decrease in the expected inflation rate, then,

• A)the nominal interest rate will increase.
• B)the nominal interest rate will decrease.
• C)the real interest rate will increase.
• D)a and c
• E)b and c

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Definitions:

Marginal Tax Rate

The percentage of tax levied on the last dollar of an income earner's taxable income, reflecting the tax applied to each income level for which the taxpayer is eligible.

After-Tax Cost

The net cost of an investment or financing after taking into account the effects of taxation.

Dividend Growth

Refers to the year-over-year increase in dividends paid out by a company, indicating its ability to generate increasing profits over time.

Gordon Model

A model used to determine the value of a stock by assuming a dividend grows at a constant rate indefinitely.