When interest income is taxed and the inflation rate rises, the tax revenue collected by the government
A) increases.
B) doesn't change.
C) decreases.
D) could either increase or decrease.

Question

Quizplus · Accepted Answer

When interest income is taxed and the inflation rate rises, the nominal interest rates typically increase to compensate for the higher inflation. This results in higher interest income, which, when taxed, leads to an increase in tax revenue collected by the government.

When Interest Income Is Taxed and the Inflation Rate Rises