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Antonio 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 Antonio'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) 2.0 4.5 4.5 9.5 Compared with lower inflation rates, a higher inflation rate will quantity of investment in the economy and After-Tax Real Interest Rate (Percent) the after-tax real interest rate when the government taxes nominal interest income. This tends to the economy's long-run growth rate. saving, thereby the

Antonio 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 Antonio'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) 2.0 4.5 4.5 9.5 Compared with lower inflation rates, a higher inflation rate will quantity of investment in the economy and After-Tax Real Interest Rate (Percent) the after-tax real interest rate when the government taxes nominal interest income. This tends to the economy's long-run growth rate. saving, thereby the

Exploring Economics
Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations
Section: Chapter Questions
Problem 13P
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Antonio 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 Antonio's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate (Percent) After-Tax Nominal Interest Rate (Percent) Real Interest Rate Nominal Interest Rate After-Tax Real Interest Rate (Percent) (Percent) (Percent) 2.0 4.5 4.5 9.5 Compared with lower inflation rates, a higher inflation rate will quantity of investment in the economy and the after-tax real interest rate when the government taxes nominal interest income. This tends to saving, thereby the z the economy's long-run growth rate.
Transcribed Image Text:Antonio 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 Antonio's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate (Percent) After-Tax Nominal Interest Rate (Percent) Real Interest Rate Nominal Interest Rate After-Tax Real Interest Rate (Percent) (Percent) (Percent) 2.0 4.5 4.5 9.5 Compared with lower inflation rates, a higher inflation rate will quantity of investment in the economy and the after-tax real interest rate when the government taxes nominal interest income. This tends to saving, thereby the z the economy's long-run growth rate.
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