Arnold puts money into an account. One year later he sees that he has 5 percent more dollars and that his money will buy 6 percent more goods. ()
A. The nominal interest rate was 11 percent and the inflation rate was 5 percent.
B. The nominal interest rate was 6 percent and the inflation rate was 5 percent.
C. The nominal interest rate was 5 percent and the inflation rate was -1 percent.
D. None of the above is correct.
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In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level ()
A. decrease that benefited creditors at the expense of debtors.
B. decrease that benefited debtors at the expense of creditors.
C. increase that benefited creditors at the expense of debtors.
D. increase that benefited debtors at the expense of creditors.
You put money in an account that earns a 5 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate on the bank account is 20 percent. What is your after-tax real rate of interest? ()
A. 3.4 percent
B. 1.6 percent
C. 1 percent
D. None of the above is correct.
Given a nominal interest rate of 8 percent, in which case below would you earn the highest after-tax real interest rate? ()
A. Inflation is 5 percent; the tax rate is 20 percent.
B. Inflation is 4 percent; the tax rate is 30 percent.
C. Inflation is 3 percent; the tax rate is 40 percent.
D. The after-tax real interest rate is the same for all of the above.
Sally purchased one share of Stryker stock for $200 in year 1 and sold that share in year 2 for $400. The inflation rate between year 1 and year 2 was 50%. If the capital gains tax is 50%, what’s Sally’s after tax-real capital gain if the tax is on nominal gains? What is it if the tax is on real gains? ()
A. $0, $50
B. $50, $0
C. $100, $150
D. $100, $150