Economists feel that taxing nominal capital gains imposes costs on the economy due to
a. reduced investment.
b. reduced consumption.
c. increased consumption.
d. increased investment.

Taxing nominal capital gains can lead to reduced investment because investors may become less willing to take risks or invest in new projects if they know they’ll be taxed on gains that may merely reflect inflation rather than real profit. This hesitation can stifle innovation and overall economic growth, as fewer resources flow into potentially lucrative ventures.

Additionally, the distortion caused by taxing nominal gains can create a common mistake where individuals hold on to their investments longer than they should, simply to avoid triggering a tax event. This behavior, known as “tax loss harvesting,” can lead to inefficiencies in capital allocation, as resources are tied up in underperforming assets rather than being redirected into areas of greater potential.