Why do governments sometimes pay for their spending by printing more money? Why do economists refer...
Why do governments sometimes pay for their spending by printing more money? Why do economists refer to this as an ‘inflation tax” that can result in very harmful results?
Homework Answers
Government sometimes fund their debt by priinting extra money as this is the cheapest form to fund the debt if used judiciously since, if the money supply is not absorbed then there will be too much money chasing too few goods leading to increased inflation which is being referred as "Inflation Tax" since this cut the real value of money. Higher money supply will lead the exchange rate to depriciate if the demand for currency is not matched for increase in supply and at the same time will cause high inflation rates.
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5. Using money creation to pay for government spending Consider Kharkeez, a hypothetical country that produces only burgers. In 2017, a burger is priced at $4.00. Complete the first row of the table with the quantity of burgers that can be bought with $700. Hint: In this problem, assume it is not possible to buy a fraction of a burger, and always round down to the nearest whole burger. For example, if your calculations result in 1.5 burgers, the answer...
Question 33 (1 point) Which statement best explains why governments may prefer an inflation tax to some other kind of tax? The inflation tax falls mainly on high-income individuals. The inflation tax reduces inflation. The inflation tax is easier to impose. The inflation tax reduces the real cost of government expenditure. Question 34 (1 point) How can people avoid the inflation tax? by reducing cash holdings by not filing a tax return by spending less by reducing savings
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