Question

The inflation tax refers to

A) higher inflation which requires more frequent price changes.
B) taxes being indexed for inflation.
C) the idea that, other things the same, an increase in the tax rate raises the inflation rate.
D) the revenue a government created by printing money. g

Answer 1

The correct answer is option D) the revenue a government created by printing money

Step-by-step explanation:

Inflation tax is not actully a tax. It is the price, extra cost that people have to bear as the inflation keeps increasing.

Answer 2

The correct answer is letter "D": the revenue a government created by printing money.

Step-by-step explanation:

When the government prints more money, there will be more supply of it. A higher supply of money tends to increase general prices causing inflation. Therefore, households will have to pay more money for goods and services which implies they will be paying more taxes, benefiting the government since it will have more money to finance its projects.

The previous practice mentioned is implemented by governments that are not willing to increase the interest rate directly.