Question: Hello, please help me with this (the drop arrows and blank boxes), I continue to them it incorrect. 12. Inflation-induced tax distortions Edison receives a

12. Inflation-induced tax distortions Edison receives a portion of his income from

Hello, please help me with this (the drop arrows and blank boxes), I continue to them it incorrect.

his holdings of interest-bearing U.S. government bonds. The bonds offer a real

12. Inflation-induced tax distortions Edison receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4.5% 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 4.5% per year, find the nominal interest rate on Edison's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate Real Interest Rate Nominal Interest Rate Nominal Interest Rate (Percen t) After-Tax Real Interest Rate (Percen t) (Percen t) 2.0 (Percen t) 4.5 (Percent) Choices for the drop arrow lines are as follows: Compared with lower inflation rates, a higher inflation rate will the after-tax real interest rate when the government taxes v the quantity of investment in the economy and Drop#l : Drop#2 : Drop#3 : Compared with lower inflation rates, a higher inflation rate will: This tends to: (Choices are: encourage, or discourage). saving, thereby: (Choices are: increasing, or decreasing). (Choices are: increase, or decrease). nominal interest income. This tends to the economy's long-run growth rate. saving, thereby Drop#4: the quantity of investment in the economy and: (Choices are: increasing, or decreasing).

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