Asked by karyme catano on Jul 20, 2024
Verified
For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.
After-tax Real Interest Rate
The interest rate adjusted for inflation after taxes have been taken into account.
- Understand the impact of inflation on savings and investments, especially in terms of taxation and real interest rates.
Verified Answer
KB
kenneth berreyJul 22, 2024
Final Answer :
True
Explanation :
The real interest rate is adjusted for inflation, so if the inflation rate increases, the purchasing power of the interest earned decreases, effectively reducing the after-tax real interest rate.
Learning Objectives
- Understand the impact of inflation on savings and investments, especially in terms of taxation and real interest rates.