Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Inflation-induced tax distortions
Tim receives a portion of his income from his holdings of interest-bearing 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 Tim's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario.
Inflation RateReal Interest RateNominal Interest RateAfter-Tax Nominal Interest RateAfter-Tax Real Interest Rate(Percent)(Percent)(Percent)(Percent)(Percent)2.04.5 8.54.5
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.
Why might it be difficult for the Fed to formally adopt inflation targeting? Would inflation targeting be a good policy for the Fed in the present economic environment
In using the Taylor Rule as a guideline for monetary policy, what are the pros and cons of using forecasted values of inflation and output rather than observed values of these variables?
Describe the present economic crisis situation in Europe. Why has it been so difficult for the Europeans to find a solution to this problem? Comment on what implications the crisis may have for the rest of the world if Europeans are not able to ag..
Question:. Explain why there are long-term Federal government budget problems. Explain why the base-line forecast of the CBO is misleading.
Question based on Derive and compare demand curve, Derive Ambrose's demand function for peanuts. How does it compare with Johnny's demand curve for peanuts?
Problem based on Utility Function - Problem, Answer and explain the following using a diagram which is completely labeled.
Question based on Laffer Curve : Tax Rate and Tax Revenue, Do raising tax rates necessarily raise tax revenue? What factors affect how tax revenue changes when tax rates change?
Problem - Income Elasticity of Demand, Interpret the following Income Elasticities of Demand (YED) values for the following and state if the good is normal or inferior; YED= +0.5 and YED= -2.5
Question Positive Balance of Payment: "Things will look good for the US if we could just get to where we are consistently running a positive Balance of Payments."
Comment on the effect of a recession on the investment curve (only) and on the level of savings, investment, and the equilibrium real interest rate in the financial crisis that hits United States first starting in fall 2007.
How will a fall in domestic investment affect the trade surplus and net capital outflows in the domestic economy, the trade deficit and capital inflows in the rest of the world.
Banking crises crisis decreases depositors' confidence in the banking system. What would be the effect of a rumor about a banking crisis on checkable deposits in such a country?
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd