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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 one-to-one adjustment between the nominal interest rate and the inflation rate. This is an application of money neutrality. It only applies to the long run....
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This note was uploaded on 04/21/2008 for the course ECON 112 taught by Professor Patrón during the Spring '07 term at Emory.
- Spring '07