Because of inflation-induced changes in taxes on capital gains and interest income, higher inflation tends to discourage people from saving and lowers the rate of economic growth.

Question

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When inflation increases, the taxes on capital gains and interest income also tend to increase. This makes saving less attractive and causes people to invest less, which can lower the rate of economic growth. Additionally, high inflation erodes the value of people's savings and causes uncertainty in the economy, which can further slow down growth.

Because of Inflation-Induced Changes in Taxes on Capital Gains and Interest