Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's after-tax real rate of interest
a. will be 1.2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
b. will be 1.2 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.
c. will be 1.7 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
d. will be 1.7 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.
a
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Real business cycle theory explains variations in prices, employment, and real Gross Domestic Product (GDP) by focusing on
A) changes in real variables such as supply shocks, technological changes, and shifts in the composition of the labor force. B) anticipated changes in fiscal policy enacted by the government. C) the effects of the Phillips curve. D) anticipated monetary policies enacted by the Fed.
Which of the following will shift the aggregate demand curve to the left, ceteris paribus?
A) an increase in interest rates B) an increase in disposable income C) an increase in expected profits for firms D) an increase in net exports