8. Inflation-induced tax distortions Kevin receives a portuon of his incorne from his holdings of interest-bearing U.5. government bends, The bonds offer a real interest rage of JW per reac. The nominal interest rate on the bonds adjusts automabcally to account for the inflation rate. The government taxe nominal interest income at a rate of 10 W. The following table shows two scenarios; a lon-inflation scenario and a high: intlation scenario. interest rate under each inflation scenavo. Compared with higher inflation rates, a lower inflatoon rate wal nominal interest income. Thrs tends to the after-tax real interest rate when the goveinment taxes the quantify of irvestiment in the econontry and the econermy/s long-fun growth rate