Suppose that last year you borrowed 100 at 5 percent interest to purchase a 100 pair of Nike cross-training shoes. This year you repaid the bank with interest. If the inflation rate was 10 percent last year, your purchase of the shoes would:
a. make you an inflation winner as you saved 5 on the shoes.
b. make you an inflation loser as you paid 5 more than you should have for the shoes.
c. not be affected at all by the inflation rate.
d. be taxed according to COLA adjustments.
e. make you an inflation loser because of bracket creep.
Question 2
Lower marginal tax rates encourage people to work, save, and invest, resulting in more output and a larger tax base. This statement most closely reflects which of the following schools of economic thought?
a. Keynesian.
b. Adam Smithian.
c. Aggregate demandian.
d. Supply-side economics.
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How to calculate compound interest (Part 2)
A $50 000 bond bearing interest at 6.5% bond payable semi-annually matures in 10 years. If it ...