10. Assume that Wes lives for two periods, period 1 and period 2. And suppose that the nominal interest rate is 10%, that the inflation rate is 10%, and that the tax rate on interest from savings is 25%. If Wes has $100 in savings in period 1 , then: a. Wes's real after-tax interest rate is negative. b. Wes's savings will have more buying power in period 2 than period 1. c. Wes's real after-tax interest rate is zero. d. Wes will not pay taxes on interest, since his real interest rate is zero. 11. Suppose that Lilistan has two types of citizens: low-income citizens (income =$20,000 ) and high-income citizens (income =$80,000). Interest income is taxed, and each type of citizen saves 10% of their income for retirement. The government is proposing to allow citizens to put money into an IRA, where the contributions would be tax deductible and interest would accumulate tax-free. Withdrawals would be taxed as income. The government wants to set a $5,000 annual limit on the accounts. Discuss the effect of this policy on the saving choices of both the lowincome and high-income citizens in terms of both income and substitution effects as well as the overall effect. 12. Suppose that the government starts taxing interest on savings. Savings will through the substitution effect; savings will through the income effect. a. increase; remain unchanged b. increase; decrease c. decrease; increase d. remain unchanged; increase