Suppose that the government passes a new law that sets a limit on the interest rate that

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Suppose that the government passes a new law that sets a limit on the interest rate that credit card companies can charge on overdue balances. As a result, the nominal interest rate charged by credit card companies falls from 15 percent a year to 7 percent a year. If the average income tax rate is 30 percent, explain how the after-tax real interest rate on overdue credit card balances changes.

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Foundations of Macroeconomics

ISBN: 978-0134492001

8th edition

Authors: Robin Bade, Michael Parkin

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