Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

The after-tax nominal interest rate is calculated by subtracting the tax impact from the nominal rate: 5% * (1 - 30%) = 3.5%. To find the inflation rate, we use the Fisher equation in its rearranged form: nominal rate - inflation rate = real rate. Here, we need to adjust the real rate back to its pre-tax value to make it comparable. Given the after-tax real rate is 2.1%, and this is after a 30% tax, the pre-tax real rate would be higher. However, without adjusting for this, simply using the given after-tax real rate and the after-tax nominal rate directly to find inflation would not yield the correct inflation rate directly. The calculation provided does not directly lead to determining the inflation rate as 2%.