Assume that the nominal rate of interest is 10% and the inflation rate is 10%.The tax rate on interest from savings is 25%; in the first period,Wes has $100 in savings.After taxes,what will Wes's nominal savings be one year from now?

Question

Quizplus · Accepted Answer

Nominal savings after one year = $100 x (1 + 0.10) = $110 (before taxes). 
However, the inflation rate is also 10%, so the real value of Wes's savings is unchanged. 
After taxes, he will receive $110 x (1 - 0.25) = $82.50. 
Therefore, his nominal savings one year from now will be $107.50.

Assume That the Nominal Rate of Interest Is 10% and the Inflation