Sam Deposits Money into an Account with a Nominal Interest

question 302

Multiple Choice

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 20 percent. Sam's after-tax real rate of interest

• A)will be 2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
• B)will be 2 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.
• C)will be 1.7 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
• D)will be 1.7 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.

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Definitions:

Reverse Causality

A situation where the presumed effect influences the cause, complicating the understanding of the relationship between variables.

Correlation

A statistical measure that indicates the extent to which two or more variables fluctuate together.

Cultural Theories

Frameworks that seek to understand the complex dynamics of culture, including its impacts on identity, society, and global relations.

Correlation Coefficient

A numerical value that ranges from -1 to +1 that indicates the strength and direction of a relationship between two variables.