Economists Project the Long-Run Real Growth Rate for the Next

question 54

Multiple Choice

Economists project the long-run real growth rate for the next five years to be 2.5 percent and the average annual rate of inflation over this five-year period to be 3 percent. What is the expected nominal rate of return over the next five years?

• A) 0.500 percent
• B) 1.056 percent
• C) 2.750 percent
• D) 5.500 percent
• E) 5.575 percent

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Definitions:

Baseball Hat

A type of soft cap with a rounded crown and a stiff bill projecting in front.

Tax

A mandatory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Marginal Tax Rate

The amount of tax paid on an additional dollar of income, which is typically a percentage that increases as income rises.

Horizontal Equity

The principle of tax fairness that states individuals with similar income and ability to pay should be taxed at the same rate.