8. Inflation-induced tax distortionsPat receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 3% 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 20%. The following table shows two scenarios: a low-inflation scenario and a high-inflation scenario.Given the real interest rate of 3% per year, find the nominal interest rate on Pat's bonds, the after-tax nominal interest rate, and the after-tax realinterest rate under each inflation scenario.Inflation Rate Real Interest Rate Nominal Interest Rate(Percent)2.56.5(Percent)3.03.0(Percent)After-Tax Nominal Interest Rate(Percent)After-Tax Real Interest Rate(Percent)Compared with lower inflation rates, a higher inflation rate willnominal interest income. This tends tosaving, therebythe economy's long-run growth rate.the after-tax real interest rate when the government taxesthe quantity of investment in the economy and

Approach to solving the question: Fill in the table first using the formulas. These can be used to…

Answered: 8. Inflation-induced tax distortions…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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12. Inflation-induced tax distortions Ashwin 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 Ashwin'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 After-Tax Nominal Interest Rate (Percent) (Percent) (Percent) (Percent) 2.5 4.5 7.0 4.5 Compared with higher inflation rates, a lower inflation rate will nominal interest income. This tends to ▼saving, thereby the economy's long-run growth rate. After-Tax Real Interest Rate (Percent) the…
just answer part c , d and e notice that you can do it without the answer of part a and b
5. Identifying costs of inflation Beth owns and operates a store in a country experiencing a high rate of inflation. In order to prevent the value of money in her cash register from falling too quickly, Beth sends an employee to the bank four times per day to make deposits in an interest-bearing account that protects the store's revenues from the effects of inflation. This is an example of the of inflation.
a. Examine the fundamental causes of a nation’s business cycle fluctuations. Also, examine the relationship between total spending by government and consumers in a nation and the location of the countries’ GDP on the business cycle. b. 1. Suppose you have $200,000 in a bank term account. You earn 5% interest per annum from this account.You anticipate that the inflation rate will be 4% during the year. However, the actual inflation rate for the year is 6%.Calculate the impact of inflation on the bank term deposit you have and examine the effects of inflation in your city of residence with attention to food and accommodation expenses. 2. The Australian Bureau of Statistics (ABS) reported in May 2017 that the civilian population in Australia over 15 years of age was 20.8 million.Of this population of 20.8 million Australians, 13.5 million were employed and 0.7 million were unemployed.Calculate Australia’s labor force and the number of people in the civilian population who were not in…
If the tax is 40 percent compute the before tax interest rate and the after tax real interest rate in the following cases 1 the nominal interest rate is 10 percent and the inflation rate is 5 percent 2 the nominal interest rate is 6 percent and the inflation rate is 2 percent 3 the nominal interest rate is 4 percent and the inflation rate is1 percent
12. Inflation-induced tax distortions Loc 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 Loc'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 After-Tax Nominal Interest Rate After-Tax Real Interest Rate (Percent) (Percent) (Percent) (Percent) (Percent) 3.5 4.5 8.5 4.5 Compared with lower inflation rates, a higher inflation rate will nominal interest income. This tends to the economy's long-run growth rate. saving, thereby the after-tax…
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
Unanticipated inflation Unanticipated inflation penalises: A. those earning incomes that are taxed in nominal terms B. those who hold cash C. those who lend money at a fixed interest rate D. those earning incomes that are taxed in nominal terms, those who hold cash and those who lend money at a fixed interest rate
Negative real interest rates occur when the inflation rate is greater than the nominal interest rate. True or false? a. False b. True
Suppose that the nominal rate of interest is 6 percent and the inflation premium is 1 percent. What is the real interest rate? % Alternatively, assume that the real interest rate is 3 percent and the nominal interest rate is 8 percent. What is the inflation premium? %
8. Inflation-induced tax distortions Shen 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% 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 20%. The following table shows two scenarios: a low-inflation scenario and a high- inflation scenario. Given the real interest rate of 4% per year, find the nominal interest rate on Shen'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 After-Tax Nominal Interest Rate After-Tax Real Interest Rate (Percent) (Percent) (Percent) (Percent) (Percent) 1.5 4.0 8.0 4.0 Compared with higher inflation rates, a lower inflation rate will the after-tax real interest rate when the government taxes nominal interest income. This tends to Y saving,…

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