2. (Real and nominal interest rates): Suppose the real return on investing ina machine is 5% and the inflation rate is 4%.

(d) Suppose that nominal earnings on saving accounts are taxed at 20%.If the inflation rate is 5% and the nominal interest rate is 10%, whatare the before-tax and after-tax real interest rates ?

(e) How would your answer change if the inflation rate is 15% and thenominal interest rate is 20%?