Suppose that capital income taxes are based (as they are in Canada and most countries) on nominal interest rates. If the inflation rate increases by 5 percent a year, explain and use appropriate...

Suppose that capital income taxes are based (as

they are in Canada and most countries) on nominal interest rates. If the inflation rate increases

by 5 percent a year, explain and use appropriate

graphs to illustrate the effect of the rise in inflation on:

a. The tax increase on capital income

b. The supply of loanable funds

c. The demand for loanable funds

d. Equilibrium investment

e. The equilibrium real interest rate