8. Inflation induced tax distortions Hubert receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario and a high- inflation scenario, Given the real interest rate of 4% per year, find the nominal interest rate on Hubert's bonds, the after tax nomna mterest rate and the witer-tax real interest rate under each inflation scenario Inflation Rate (Percent) 1.0 Real Interest Rate (Percent) Nominal Interest Rate (Percent) After Tax Nominal Interest Rate (Percent) After-Tax Real Interest Rate (Percent) 4.0 7.0 4.0 Compared with lower inflation rates, a higher inflation rate will nominal interest income. This tends to saving, thereby the economy's long-run growth rate. the after-tax real interest rate when the government taxes the quantity of investment in the economy and