Suppose the Nominal Interest Rate Is 6%,the Tax Rate on Interest

question 28

Essay

Suppose the nominal interest rate is 6%,the tax rate on interest income is 30%,and expected inflation is 3%.
(a)Calculate the expected real after-tax interest rate.
(b)Calculate the expected real after-tax interest rate if the nominal interest rate falls to 4%.
(c)Calculate the expected real after-tax interest rate if the tax rate increases to 50% (with the nominal interest rate at its original value of 6%).
(d)Calculate the expected real after-tax interest rate if expected inflation increases to 5% (with the nominal interest rate at its original value of 6% and the tax rate at its original value of 30%).

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Definitions:

Punishment

A consequence that decreases the likelihood of a behavior being repeated.

People's Response

The reactions or responses provided by individuals or groups to various stimuli or situations.

Enjoy

To take delight or pleasure in an activity or experience.

Escape Response

A behavioral reaction by an organism to avoid or flee from an unpleasant or threatening stimulus.