The effect of the anticipated future inflation will be to cause the nominal interest rate to increase by the expected increase in the future percentage inflation rate. This increase arises because asset holders will try to shift parts of their portfolios out of fixed-income and fixed nominally valued securities and into equities. This will reduce bond prices and increase the implicit interest rates on the fixed-income securities whose real value will decline with future increases in the price level. This rise in nominal interest rates also reduces the nominal quantity of money demanded by asset holders, causing them to try to shift out of money and into other assets including real capital. The resulting increase in the price of real capital will reduce real interest rates and nominal interest rates as well. The resulting rise in the prices of capital goods relative to their costs of production will lead to an increase in the level of investment and an increase in output and employment in the short run. As time passes, wages and prices will rise and the price level will increase to the point where the real stock of money balances is reduced to its new desired level with the level of employment returning to its long-run equilibrium level.