Suppose the tax rate on interest income is 50 per cent, the real interest rate is 3 per cent, and the inflation rate is 4 per cent. In this case, the real after- tax interest rate is

Question

Quizplus · Accepted Answer

The nominal interest rate is the sum of the real interest rate and the inflation rate, which is 3% + 4% = 7%. The after-tax nominal interest rate is 7% * (1 - 0.5) = 3.5%. The real after-tax interest rate is the after-tax nominal interest rate minus the inflation rate, which is 3.5% - 4% = -0.5%.

Suppose the Tax Rate on Interest Income Is 50 Per