Assume an economy begins with zero inflation, a 25 percent income tax rate, and a real interest rate of 4 percent. If inflation rises to 4 percent, the nominal interest rate becomes percent and the after-tax real interest becomes percent.

Nominal interest rate is interest rate that has not been adjusted for inflation. It is calculated as real interest rate + inflation rate. The nominal interest rate is the more commonly quoted interest rate.

Nominal interest rate = 4%+4%=8%

After tax real interest rate = [nominal interest rate × ( 1 - tax rate )] - inflation rate

0.08 × (0.75) = 0.06 = 6%

6% - 4% = 2%

Assume an economy begins with zero inflation, a 25 percent income tax rate, and a real interest rate of 4 percent. If inflation rises to 4 percent, the nominal interest rate becomes ________ percent and the after-tax real interest becomes ________ percent.

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Assume an economy begins with zero inflation, a 25 percent income tax rate, and a real interest rate of 4 percent. If inflation rises to 4 percent, the nominal interest rate becomes percent and the after-tax real interest becomes percent.