1. Ben has $1,000 in his savings account and the bank pays an interest rate of 5 percent a year. The inflation rate is 3 percent a year. The government taxes the interest that Ben earns on his deposit at 20 percent. Calculate the aftertax nominal interest rate and the after-tax real interest rate that Ben earns.

2. Economy A has a stable price level—no inflation. Economy B is in a hyperinflation—prices are rising at a rate of 50 percent per month. Describe and explain the differences between these two economies in the money growth rate, the velocity of circulation, the nominal interest rate, and the frequency of wage payments.