Which of the following statements is most correct?
A) As inflation increases, the real rate of return on capital investments tends to decrease if all other conditions
Remain unchanged.
B) The real income tax rate increases with the rate of inflation and the age of the asset.
C) As we experience a higher inflation, we will expect the real rate of return on working capital investments to
Decrease.
D) All of the above

Question

Which of the following statements is most correct? 
A) As inflation increases, the real rate of return on capital investments tends to decrease if all other conditions
Remain unchanged.
B) The real income tax rate increases with the rate of inflation and the age of the asset.
C) As we experience a higher inflation, we will expect the real rate of return on working capital investments to
Decrease.
D) All of the above

Quizplus · Accepted Answer

All the statements provided are correct in the context of inflation and its impact on investments and taxation. Inflation tends to decrease the real rate of return on capital investments because the nominal gains do not keep pace with the inflation rate, effectively reducing the purchasing power of those returns. The real income tax rate can increase with inflation because nominal gains might push taxpayers into higher brackets, even though their real income hasn't increased. Similarly, the real rate of return on working capital investments decreases with higher inflation, as the costs associated with maintaining or replacing working capital (like inventory) increase, reducing the real profitability of those investments.

Which of the Following Statements Is Most Correct