Given a Nominal Interest Rate of 5 Percent, in Which

question 250

Multiple Choice

Given a nominal interest rate of 5 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

• A)Inflation is 3 percent; the tax rate is 20 percent.
• B)Inflation is 2 percent; the tax rate is 40 percent.
• C)Inflation is 1 percent; the tax rate is 60 percent.
• D)The after-tax real interest rate is the same for all of the above.

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Definitions:

Transverse

Positioned or extending across something, typically at a right angle to the longest dimension.

Frontal

Pertaining to the forehead or the frontal bone of the skull.

Cavity

An empty or hollow space within a solid structure or object.

Homeostasis

The self-regulating process by which biological systems tend to maintain stability while adjusting to conditions that are optimal for survival.