8. Inflation-induced tax distortions Sam receives a portion of his income from his holdings of Interest-bearing…
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Question “8. Inflation-induced tax distortions Sam receives a portion of his income from his holdings of Interest-bearing…”
Answer
Answer:
Real Interest Rate = Nominal rate – Inflation rate
nominal interest rate = real rate + inflation rate
Nominal interest rate after tax = nominal interest rate* (1-tax rate).
= Nominal Interest Rate x 0.9
After-tax real interest rate = After-tax nominal interest inflation
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(B)
An lower inflation rate will strengthenTag11 the after-tax real rate of interest.
This tends towards encourage savings and increasing long-term growth rate.
Conclusion
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