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

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Quizplus · Accepted Answer

The nominal interest rate is the real interest rate plus inflation, 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 inflation, which is 3.5% - 4% = -0.5%.

Suppose the Tax Rate on Interest Income Is 50 Percent,the