3 AttemptsKeep the Highest/28. Inflation-induced tax distortionsFelix 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% peryear. 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 Felix'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 After-Tax Nominal Interest Rate After-Tax Real Interest Rate(Percent)(Percent)(Percent)(Percent)(Percent)2.04.54.59.5Compared with lower inflation rates, a higher inflation rate will decrease the after-tax real interest rate when the government taxesnominal interest income. This tends to discourage saving, thereby decreasing the quantity of investment in the economyand decreasing the economy's long-run growth rate.Grade It NowSave & ContinueContinue without saving

Nominal interest rate is considering the impact of inflation and real interest rate is without…

tempts Keep the Highest/2 . Inflation-induced tax distortions Felix receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rat wear. 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 ar inflation scenario. Given the real interest rate of 4.5% per year, find the nominal interest rate on Felix's bonds, the after-tax nominal interest rate, and th interest rate under each inflation scenario. Inflation Rate Real Interest Rate Nominal Interest Rate (Percent) (Percent) 4.5 4.5 (Percent) 2.0 9.5 After-Tax Nominal Interest Rate (Percent) After-Tax Real Interes (Percent)

tempts Keep the Highest/2 . Inflation-induced tax distortions Felix receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rat wear. 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 ar inflation scenario. Given the real interest rate of 4.5% per year, find the nominal interest rate on Felix's bonds, the after-tax nominal interest rate, and th interest rate under each inflation scenario. Inflation Rate Real Interest Rate Nominal Interest Rate (Percent) (Percent) 4.5 4.5 (Percent) 2.0 9.5 After-Tax Nominal Interest Rate (Percent) After-Tax Real Interes (Percent)

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter4: Gross Income

Section: Chapter Questions

Problem 3BD

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Inflation-induced tax distortions Chris 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 Chris'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) 3.0 4.5 9.5 4.5 Compared with lower inflation rates, a higher inflation rate will (INCREASE or DECREASE) the…
Darnell 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 Darnell'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) 2.5 4.0 8.5 4.0 Compared with higher inflation rates, a lower inflation rate will the after-tax real interest rate when the government taxes…
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2022 ANNUAL RATES INDIVIDUAL INCOME TAX SCHEDULE NO CHARGEABLE INCOME RATE OF TAX First GHS 4,380 Nil Next GHS 1,320 5 percent Next GHS 1,560 10 percent Next GHS 36,000 17.5 percent Next GHS 196,740 25 percent Exceeding GHS 240,000 30 percent Question 2(a) Taxation as a fiscal policy is a very helpful tool in most economies, however some researcher believes that in Ghana, it has become a curse to the economic development and growth of the country. Discuss