The nominal interest rate is 10%, the expected inflation rate is 5%, and the combined state-federal tax rate is 35%. The expected after-tax real interest rate is
a. 1.50%
b. 6.50%
c. 3.25%
d. 5.00%
Answer: A
FIN 201
- Whether real seignorage revenue increases when the rate of money growth increases depends on whether
- Consider an economy that has the following monetary data. Currency held by the nonbank public = $300 Bank reserves = $50 Monetary base = $350 Deposits = $700 Money supply = $1000 The monetary base and the money supply are expected to grow at a constant rate of 20% per year. Inflation and expected inflation are 20% per year. Suppose that bank reserves and currency pay no interest, all currency is held by the public, and bank deposits pay no interest. What is the nominal value of seignorage over the year?
- Consider an economy that has the following monetary data. Currency held by the nonbank public = $300 Bank reserves = $50 Monetary base = $350 Deposits = $700 Money supply = $1000 The monetary base and the money supply are expected to grow at a constant rate of 20% per year. Inflation and expected inflation are 20% per year. Suppose that bank reserves and currency pay no interest, all currency is held by the public, and bank deposits pay no interest. What is the cost to the public of the inflation tax?
- Real money demand in the economy is given by L = 0.5Y - 2500i, where Y is real income and i is the nominal interest rate. In equilibrium, real money demand L equals real money supply M/P. Suppose that Y equals 1000 and the real interest rate is 0.02. What is the maximum amount of seignorage revenue?
- Real money demand in the economy is given by L = 0.5Y - 2500i, where Y is real income and i is the nominal interest rate. In equilibrium, real money demand L equals real money supply M/P. Suppose that Y equals 1000 and the real interest rate is 0.02. At what rate of inflation is seignorage maximized?
- Assume that in an all-currency economy the real interest rate is 4%, the expected rate of inflation is 8%, and the nominal interest rate is 12%. The real monetary base equals $50 billion. The real seignorage revenue collected by the government would equal
- The real seigniorage collected by the government in an all-currency economy is the product of
- In an all-currency economy in which real output and the real interest rate are fixed and the rates of money growth and inflation are constant, the inflation rate equals
- In which case would you be most likely to expect inflation to occur?
- The relationship between the government deficit and the change in the monetary base is
- State governments in the United States can raise revenue by all the following means except
- Seignorage is the revenue a government raises by
- Deficits are a burden on future generations if they
- According to the Ricardian equivalence proposition, current deficits
- A decreased government deficit created by a lump-sum tax increase will increase national saving if
- If the deficit is 0.02 times GDP, the existing debt/GDP ratio is 0.5, and the growth rate of nominal GDP is 0.03, then the change in the debt-GDP ratio is
- Increases in the debt-GDP ratio are primarily caused by
- The total value of government bonds outstanding at any particular time is called the
- The average cost of the distortion created by taxes
- Assume that the lost output due to tax distortions is proportional to the square of the tax rate. If the average cost of the distortion created by taxes is currently $1000, and the tax rate is increased from 40% to 50%, the average cost of the distortion created by taxes will increase to
- Taxes distort economic behavior because they
- Suppose that all workers place a value on their leisure of 40 goods per day. The production function relating output per day Y to the number of people working per day N is Y = 200N - N^2 and the marginal product of labor is MPN = 200 - 2N. A 20% tax is levied on wages. In terms of lost output, what is the cost of the distortion introduced by this tax?
- Suppose that all workers place a value on their leisure of 40 goods per day. The production function relating output per day Y to the number of people working per day N is Y = 200N - N^2 and the marginal product of labor is MPN = 200 - 2N. A 20% tax is levied on wages. Output per day would be
- A decrease in the average tax rate, with the marginal tax rate held constant, will
- An increase in the marginal tax rate, with the average tax rate held constant, will