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16 March, 11:49

Given U. S. tax laws, persistently high inflation may result in:

a. slower economic growth because the after-tax nominal interest rate is lower. b. slower economic growth because the after-tax real interest rate is lower. c. faster economic growth because the after-tax real interest rate is higher. d. faster economic growth because the after-tax nominal interest rate is higher.

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  1. 16 March, 12:17
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    Option b. Slower economic growth because the after-tax real interest rate is lower.

    Explanation:

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

    so the after-tax rate cuts the real rate by the product of nominal rate * real rate. The decreased real interest rate decreases the investment in the economy and growth decreases.
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