Given a Nominal Interest Rate of 6 Percent,in Which of the Following

question 69

Multiple Choice

Given a nominal interest rate of 6 percent,in which of the following cases would you earn the lowest after-tax real rate of interest?

• A)Inflation is 4 percent;the tax rate is 5 percent.
• B)Inflation is 3 percent;the tax rate is 20 percent.
• C)Inflation is 2 percent;the tax rate is 30 percent.
• D)The after-tax real interest rate is the same for all of the above.

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Definitions:

Disposable Income

The sum of money families can use for expenditures and savings once income taxes are deducted.

Necessities

Fundamental needs required for sustaining human life, such as food, water, shelter, and clothing.

Economic Activity

Any action that involves the production, distribution, and consumption of goods and services at all levels within a society.

Declining

A phase in the product life cycle where sales and profits begin to decrease as the product loses market interest or becomes obsolete.