Sam Deposits Money into an Account with a Nominal Interest

question 89

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 32 percent.Sam's after-tax real rate of interest

• A)will be 1.2 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 1.2 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:

Unemployment

The situation where individuals who are able and willing to work cannot find employment.

Withdrawal Of Labor

The act of removing oneself from the labor force or stopping the supply of labor, often in the form of strikes or quitting a job.

Strike

The organized withdrawal of labor from a firm by a union.

Minimum-wage Laws

Legislation that sets the lowest hourly wage rate that an employer can legally pay its workers, aiming to ensure a minimum standard of living.