Unformatted text preview: Real interest rate = nominal interest rate – inflation 5) Taxes and interest rates Let tax denote the tax rate. For example if the tax rate is 20%, then tax = 0.20; if the tax rate is 40%, then tax = 0.4. Then, After tax nominal interest rate = (1 tax) (before tax nominal interest rate) After tax real interest rate = (after tax nominal interest rate) – (inflation rate) 6) Fisher effect: the onetoone adjustment between the nominal interest rate and the inflation rate. This is an application of money neutrality. It only applies to the long run....
View
Full
Document
 Spring '07
 Patrón
 Inflation, Nominal Interest Rate, percentage change

Click to edit the document details