Sam Deposits Money into an Account with a Nominal Interest

question 89

Multiple Choice

Sam deposits money into an account with a nominal interest rate of 4 percent.He expects inflation to be 1.5 percent.His tax rate is 32 percent.Sam's after-tax real rate of interest

• A)will be 1.2 percent if inflation turns out to be 1.5 percent;it will be higher if inflation turns out to be lower than 1.5 percent.
• B)will be 1.2 percent if inflation turns out to be 1.5 percent;it will be lower if inflation turns out to be lower than 1.5 percent.
• C)will be 1.7 percent if inflation turns out to be 1.5 percent;it will be higher if inflation turns out to be lower than 1.5 percent.
• D)will be 1.7 percent if inflation turns out to be 1.5 percent;it will be lower if inflation turns out to be lower than 1.5 percent.

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Definitions:

Random Assignment

A method used in experiments to divide individuals into groups in a way that every participant has an equal chance of being assigned to any group, helping to ensure that the groups are comparable.

Independent Variable

The variable in an experiment that is manipulated or changed to observe its effect on a dependent variable.

Dependent Variable

The factor in an experiment that is predicted to vary following changes made to the independent variable.

Independent Variable

In experimental and research settings, the variable that is manipulated or changed to observe its effects on the dependent variable.