Suppose that the nominal interest rate before taxes equals 8 percent, the rate of inflation equals 3

Question:

Suppose that the nominal interest rate before taxes equals 8 percent, the rate of inflation equals 3 percent, and the tax rate equals 25 percent.
(a) Suppose that nominal interest is taxed. What are the after-tax nominal and real interest rates?
(b) Suppose that the inflation rate increases to 6 percent. What is the new nominal interest rate necessary to maintain the same after-tax real interest rate as in part a?
(c) Suppose that the tax system is reformed so that real interest is taxed. What is the real interest rate before taxes that yields the same after-tax real interest rate as in part a?
(d) Suppose that the holds. What are the nominal interest rates, given that real interest is taxed and the inflation rates equal 3 and 6 percent? Fisher Effect
The Fisher Effect is an economic theory created by economist Irving Fisher that describes the relationship between inflation and both real and nominal interest rates. The Fisher Effect states that the real interest rate equals the nominal interest...