Question: Suppose the expected inflation rate is 4 percent this year and the nominal interest rate is 8 percent. Assuming that a taxpayer is subject to

Suppose the expected inflation rate is 4 percent this year and the nominal interest rate is 8 percent. Assuming that a taxpayer is subject to a 28 percent MTR, show how an increase in the rate of inflation next year to 8 percent while the nominal interest rate rises to 10 percent affects taxation of nominal interest. How does inflation affect taxation of capital gains?

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