You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced
A)both a nominal gain and a real gain, and you paid taxes on the nominal gain.
B)both a nominal gain and a real gain, and you paid taxes only on the real gain.
C)a nominal gain, but no real gain, and you paid taxes on the nominal gain.
D)a nominal gain, but no real gain, and you paid no taxes on the transaction.

Question

Quizplus · Accepted Answer

The price per share increased by 5 percent, which is a nominal gain. However, because the price level (inflation) also increased by 5 percent, your purchasing power remained the same, indicating no real gain. Taxes are typically paid on nominal gains, not on the adjusted real gains.

You Bought Some Shares of Stock And, Over the Next