Suppose that the government passes a new law that sets a limit on the interest rate that
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Suppose that the government passes a new law that sets a limit on the interest rate that credit card companies can charge on overdue balances. As a result, the nominal interest rate charged by credit card companies falls from 15 percent a year to 7 percent a year. If the average income tax rate is 30 percent, explain how the after-tax real interest rate on overdue credit card balances changes.
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The fall in the nominal interest rate lowers the real a...View the full answer
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