Suppose the tax rate is 40% on your interest earnings. That means, for every $1 you earn as interest, you pay 40 cents in tax, and keep 60 cents for yourself. With this in mind, calculate the before-tax real interest rate and the after-tax real interest rate in each case. Hint - this question tests your ability to apply a concept. I am providing all the necessary hints below. Try to work with these hints. The main point to understand and apply in these questions (this is what we are testing you on)

Part of what I am testing you on is your ability to calculate the after-tax nominal interest rate, so unfortunately I will not be able to answer any questions beyond the hint I have already provided.

(a) Nominal interest rate is 10% and inflation is 5%.

(b) Nominal interest rate is 5% and inflation is 2%.

(c) Nominal interest rate is 7% and inflation is 5%.

(d) Is there some nominal interest rate at which it does not make sense for the government to impose a tax on interest? Explain your answer in no more than two sentences.

(e) Is there some real interest rate at which it does not make sense for the government to impose a tax on interest? Explain your answer in no more than two sentences.