Given a Nominal Interest Rate of 5 Percent,in Which of the Following

question 85

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 15 percent.
• B)Inflation is 2 percent;the tax rate is 40 percent.
• C)Inflation is 1 percent;the tax rate is 50 percent.
• D)The after-tax real interest rate is the same for all of the above.

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Definitions:

Incentivize

To motivate or encourage someone by providing a reward or incentive.

Fruit Pickers

Laborers who are employed in agriculture to manually harvest fruits from plants and trees.

Compensation

Payment or rewards given to employees for their work or services.

Compensation Rate

The amount of money or benefits given to an employee in exchange for their work or service.