Suppose the tax rate on interest income is 25 per cent, the real interest rate is 4 per cent, and the inflation rate is 4 per cent. In this case, the real after- tax interest rate is

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Quizplus · Accepted Answer

The real after-tax interest rate is the real interest rate minus the tax rate on interest income. In this case, the real interest rate is 4 per cent and the tax rate on interest income is 25 per cent, so the real after-tax interest rate is 4 per cent - 25 per cent * 4 per cent = 3 per cent.

Suppose the Tax Rate on Interest Income Is 25 Per