Under U.S. tax law that allows taxpayers to deduct interest expense, an increase in inflation Question 32 options: increases the real interest rate and the after-tax real rate of interest. increases the real interest rate and the after-tax real rate of interest. does not change the real interest rate but raises the after tax real rate of interest. does not change the real interest rate but reduces the after-tax real rate of interest.
Under U.S. tax law that allows taxpayers to deduct interest expense, an increase in inflation
Question 32 options:
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increases the real interest rate and the after-tax real rate of interest. |
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increases the real interest rate and the after-tax real rate of interest. |
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does not change the real interest rate but raises the after tax real rate of interest. |
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does not change the real interest rate but reduces the after-tax real rate of interest. |
Fisher's equation
R = I - πe
R =real interest rate
I =Nominal Interest rate
Πe =Expected inflation
With a rise in πe(Given i as constant) ,r will fall.
So, a rise in inflation does not change the real interest rate but reduces the after tax real interest rate ( Adjusted for inflation
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