Assume that marginal income tax rates are constant for everybody and equal to 40%. Also assume that
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Question:
(a) Calculate the effect of a 3% decrease in anticipated inflation on the nominal interest rate.
(b) Show graphically the effect of a 1% decrease in expected inflation on the nominal interest rate in the market for loanable funds.
(c) Suppose that the expected after-tax real interest rate is 2% and that the nominal interest rate is 5%.
What is the anticipated rate of inflation? 8% anticipated?
Related Book For
Public Finance In Canada
ISBN: 9781259030772
5th Canadian Edition
Authors: Harvey S. Rosen, Ted Gayer, Jean-Francois Wen, Tracy Snoddon
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