Larry receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4.5% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario and a high-inflation scenario. Given the real interest rate of 4.5% per year, find the nominal interest rate on Larry's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate Real Interest Rate Nominal Interest Rate After-Tax Nominal Interest Rate After-Tax Real Interest Rate (Percent) (Percent) (Percent) (Percent) (Percent) 2.0 4.5         9.5 4.5           Compared with lower inflation rates, a higher inflation rate will    the after-tax real interest rate when the government taxes nominal interest income. This tends to    saving, thereby    the quantity of investment in the economy and    the economy's long-run growth rate

Suppose, you are planning to put away $20,000 of your savings for one year. You have the following options: 1.) Buy an indexed savings bond that earns 6.50% interest rate for the next year or, 2.) Buy a non-indexed savings bond that earns 11.00% interest rate for the next year. The inflation rate for the next year is expected to be 4.50%. Which option will you choose for the next year? OA. The non-indexed bond should be chosen as it pays a higher rate of interest. OB. The rate of inflation should not play a role in making this decision. OC. It does not matter whether the indexed or the non-indexed bonds are chosen, since they pay the same real rate of interest. D. The indexed bond option should be chosen as it protects from inflation.

Suppose banks require a real interest rate of 10 percent. If they expect inflation to be 2 percent, what is the nominal interest rate?   Multiple Choice   5 percent   20 percent   8 percent   12 percent

You are a saver, and you deposit your savings in your savings account at your local bank. The bank promises a nominal interest rate on your savings of 2.10%. You expect an inflation rate of 1.25% over the next year. Based on this information, what is the real interest rate that you want to receive? 1.25% 0.85% 2.10% 3.35% -0.85%

Real interest rate is equal to Nominal Interest rate when inflation is 2% True/False

Distinguish between the general inflation rate and the average inflation rate for specific goods?

There is a persistent fear that there will be a high level of deflation. Many economists warn that it may be worse for the economy than if there is high inflation. Suppose that Herb is in debt and has to pay a 5.255.25% nominal interest rate. He expected inflation to be 1.501.50%. Instead, inflation is −2.00−2.00% (deflation). What is the real interest rate that Herb is expected to pay and that Herb is actually paying?

Answer A is incorrect. Please help me

If the inflation rate was 1% in 2014, 3% in 2015, and 2% in 2016, this economy experienced from 2014 to 2015, and from 2015 to 2016. a) inflation; inflation b) disinflation; deflation c) inflation; deflation d) inflation; disinflation

Consider the following hypothetical tax schedule, expressed in nominal terms, for the tax year 2021-22.    Assuming the CPI is 100 in 2021-22 and 125 in 2022-23, but the government does not adjust the tax schedule for tax year 2022-23, what is the average tax rate in 2022-23 for a household earning $48,000 in 2021-22, assuming their nominal income goes up with inflation? 15% 10% 9.1% 8.6% 7.7%