You deposit $1000 in the bank for one year. CASE 1: inflation = 0%, nom. Interest rate = 10% CASE 2: inflation = 10%, nom. Interest rate = 20% a.

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You deposit $1000 in the bank for one year. CASE 1: inflation = 0%, nom. Interest rate = 10% CASE 2: inflation = 10%, nom. Interest rate = 20% a. In which case does the real value of your deposit grow the most? Assume the tax rate is 25%. B. In which case do you pay the most taxes? C. Compute the after-tax nominal interest rate, then subtract off inflation to get the after-tax real interest rate for both cases.

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