If You Expect Inflation to Be 3 Percent Next Year

question 14

Multiple Choice

If you expect inflation to be 3 percent next year and you buy a one-year bond paying 4 percent interest, what is your after-tax expected real interest rate if you face a tax rate of 30 percent?

• A)−0.2 percent
• B)0.0 percent
• C)0.3 percent
• D)1.0 percent

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Definitions:

Shame and Doubt

Phases in early child development theorized by Erik Erikson, where children learn to develop autonomy while also experiencing feelings of shame and doubt about their actions.

Trust

The firm belief in the reliability, truth, ability, or strength of someone or something.

Mistrust

The feeling or belief that someone is not reliable, trustworthy, or credible.

Psychosocial Stages

Erikson’s eight developmental stages for the entire life span; each is defined by a conflict that must be resolved satisfactorily for healthy personality development to occur.