Macroeconomics 11th Edition by Michael Parkin

Exercise 24

Supply-Side Effects of Fiscal Policy
Suppose that capital income taxes are based (as they are in the United States and most countries) on nominal interest rates. And suppose that the inflation rate increases by 5 percent a year. Use appropriate diagrams to explain and illustrate the effect that this change would have on:
a. The tax rate on capital income.
b. The supply of loanable funds.
c. The demand for loanable funds.
d. Equilibrium investment.
e. The equilibrium real interest rate.