Final answer:
Changes in income tax may lead to inflation by affecting disposal income and altering consumers' spending habits. Inflation impacts society by distorting the perceived fairness of economic outcomes, such as retirees suffering and homeowners benefiting. This disrupts the relationship between actions and market results.
Step-by-step explanation:
The changes in income tax implemented by the US government in February 2009 may have caused inflation due to the adjustments in tax brackets and the effects on disposal income.
Before the late 1970s, the phenomenon known as "bracket creep" occurred, where if nominal wages increased with inflation, individuals were pushed into higher tax brackets, resulting in a greater proportion of their income being taxed, without an actual increase in real income.
After 1981, tax brackets were indexed to rise with inflation, preventing bracket creep. Nonetheless, changes in taxation can lead to increased consumer spending, thus driving up prices if supply does not keep pace.
The redistributions of buying power that inflation causes impact society by affecting perceptions of fairness and market outcomes.
For instance, retirees on fixed incomes suffer from inflation, whereas homeowners may benefit as home prices increase.
Thus, inflation can disrupt the connection between actions and market outcomes, leading the general public to view it as producing arbitrary or unfair economic rewards and penalties.