Question

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.

Answer 1

Option b . Slower economic growth because the after-tax real interest rate is lower.

Step-by-step 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.