Question

3) The nominal interest rate is 10%, the expected inflation rate is 5%, and the combined state-federal tax rate is 30%. The expected after-tax real interest rate is A) 1.50%. B) 2.00% C) 3.50% D) 6.50%. 4) Desired national saving would increase unambiguously if there were A) an increase in both current output and expected future output. B) an increase in both expected future output and government purchases. C) an increase in both expected future output and the expected real interest rate. D) a fall in both government purchases and expected future output.

Answer 1

Q3

Answer

after-tax real interest rate =nominal interest rate -nominal interest rate * %tax rate -inflation rate

=10-10*0.3-5

=2

the real interest rate is 2%

option B

Q4

Answer

option D

a fall in both government purchases and expected future output.

National saving =Y-C-G

the national saving increases as the government purchases fall which decreases the future expected output.