Suppose the tax rate on interest income is 50 percent, the real interest rate is 3 percent, and the inflation rate is 4 percent. The real after-tax interest rate is

Question

Quizplus · Accepted Answer

The real after-tax interest rate is the real interest rate minus the tax rate on interest income multiplied by the inflation rate. In this case, the real after-tax interest rate is 3% - (50% * 4%) = 3% - 2% = 1%.

Suppose the Tax Rate on Interest Income Is 50 Percent