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.

---

Definitions:

Hay

Dried grass used primarily as animal fodder, especially for grazing animals like cows and horses.

Consumer Surplus

The gap between the price consumers are prepared to pay for a product or service and the actual amount they end up spending.

Reservation Price

The maximum price a consumer is willing to pay for a good or service, beyond which they will choose not to purchase it.

Cost Function

A mathematical formula or equation that describes how production costs change with alterations in the volume of output.