Question

Taxes on Stocks and Inflation. Because they use mortgages to buy? homes, most homeowners are debtors.

Homeowners

A.

lose from unanticipated inflation because it will be harder for them to repay their loans with inflated dollars.??

B.

gain from unanticipated inflation because it will be easier for them to repay their loans with inflated dollars.??

C.

lose from anticipated inflation because it will be harder for them to repay their loans with inflated dollars.??

D.

gain from anticipated inflation because it will be easier for them to repay their loans with inflated dollars.??

The real tax burden on buying and then selling stocks tends to

A.

decrease with inflation because the nominal? gain, on which the tax burden is? based, increases with? inflation; but inflation reduces the real gain.

B.

increase with inflation because the nominal? gain, on which the tax burden is? based, increases with? inflation; but inflation reduces the real gain.

C.

decrease with inflation because the nominal? gain, on which the tax burden is? based, decreases with? inflation; but inflation reduces the real gain.

D.

increase with inflation because the nominal? gain, on which the tax burden is? based, decreases with? inflation; but inflation increases the real gain.

Answer 1

1) Taxes on Stocks and Inflation. Because they use mortgages to buy? homes, most homeowners are debtors. Homeowners

Solution: gain from anticipated inflation because it will be easier for them to repay their loans with inflated dollars.

Explanation: Since it is easy to pay loans with inflated dollars thus homemaker gains

?

2) The real tax burden on buying and then selling stocks tends to

Solution: increase with inflation because the nominal gain, on which the tax burden is based, increases with inflation; but inflation reduces with real gain

Explanation: A permanent raise in the rate of inflation raises the nominal interest rate by an equal amount reduces the real after-tax return