12. Inflation-induced tax distortions Bob receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4.5% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario and a high- inflation scenario. Given the real interest rate of 4.5% per year, find the nominal interest rate on Bob's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate Real Interest Rate Nominal Interest Rate (Percent) After-Tax Nominal Interest Rate (Percent) After-Tax Real Interest Rate (Percent) (Percent) (Percent) 2.0 4.5 8.5 4.5 Compared with lower inflation rates, a higher inflation rate will the after-tax real interest rate when the government taxes the quantity of investment in the economy and nominal interest income. This tends to the economy's long-run growth rate. saving, thereby

12. Inflation-induced tax distortions Bob receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4.5% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario and a high- inflation scenario. Given the real interest rate of 4.5% per year, find the nominal interest rate on Bob's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate Real Interest Rate Nominal Interest Rate (Percent) After-Tax Nominal Interest Rate (Percent) After-Tax Real Interest Rate (Percent) (Percent) (Percent) 2.0 4.5 8.5 4.5 Compared with lower inflation rates, a higher inflation rate will the after-tax real interest rate when the government taxes the quantity of investment in the economy and nominal interest income. This tends to the economy's long-run growth rate. saving, thereby

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Calculate the following, assuming that tax rate = 30%, nominal interest rate = 10%, expected inflation rate = 5%. a. real interest rate b. after-tax nominal interest rate c. after-tax real interest rate
7 Find and describe an inflation contemporary issue of supply and demand into three paragraphs with empirical facts including proper sources and citations related to macroeconomics as well as interesting.
In Tayler rule if inflation goes up by 4 percentage points, Yanıtınız: the target federal funds rate increases by 6 percentage points Othe target federal funds rate goes up by 4 percentage points the real interest rate fluctuates in the same direction with target rate. the real interest rate must have increased by 2 percentage points.
Suppose the inflation premium is 2 percent and the nominal interest rate is 1 percent. Instructions: in part a, enter your answer as a whole number. In part b, round your answer to 1 decimal place. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers a. What is the real interest rate? percent b. What is the real interest rate if the inflation premium is 3 percent while the nominal interest rate is 0.5 percent? percent
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Calculate the following, assuming that tax rate = 30%, nominal interest rate = 10%, expected inflation rate = 5%. a. real interest rate b. after-tax nominal interest rate c. after-tax real interest rate
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