Given a Nominal Interest Rate of 8 Percent, in Which

question 293

Multiple Choice

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

• A)Inflation is 3 percent; the tax rate is 25 percent.
• B)Inflation is 2 percent; the tax rate is 50 percent.
• C)Inflation is 1 percent; the tax rate is 75 percent.
• D)The after-tax real interest rate is the same for all of the above.

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Definitions:

Discretionary Fiscal Policy

Fiscal policy based on judgment by policymakers rather than set by predetermined rules, aiming to influence demand through changing government spending and taxation.

Clinton

A reference to Bill Clinton, the 42nd president of the United States, serving from 1993 to 2001, known for economic policies leading to budget surpluses and welfare reform.

Stimulus Package

A package of economic measures put together by a government to stimulate a struggling economy, typically including tax cuts, spending increases, and monetary policy adjustments.

High-Income Households

Families or individuals with earnings significantly above the average for a given area, often associated with higher consumption and investment capacities.