Suppose a Country Has a Real Interest Rate of 4

question 110

Multiple Choice

Suppose a country has a real interest rate of 4 percent and an inflation rate of 3 percent.If the income tax rate is 20 percent, then the after-tax real interest rate is

• A) 2.6 percent.
• B) 4.0 percent.
• C) 5.6 percent.
• D) 7.0 percent.
• E) 1.4 percent.

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Definitions:

Price Elasticity of Demand

An indicator of consumer sensitivity to price fluctuations, represented by the degree to which the demand for a product varies in response to alterations in its price.

Absolute Value

The distance of a number from zero on a number line, without considering its direction; always a positive number or zero.

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Price Elasticity of Demand

The degree to which the quantity demanded of a good changes in response to a change in its price.