ECONOMICS
INFLATION
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
is usually employed by governments with balanced budgets.
|
|
|
is a tax on people who hold money.
|
|
|
is an explicit tax paid quarterly by businesses based on the amount of increase in the prices of their products.
|
|
|
is a tax borne only by people who hold interest bearing savings accounts.
|
|
|
none of these answers.
|
Detailed explanation-1: -Answer: The term “inflation tax” refers to the penalty for retaining currency during a period of high inflation. It is a form of taxation in which the government alters the money supply. When the supply of money expands, the value of existing money decreases, resulting in a form of tax on existing money holders.
Detailed explanation-2: -Inflation is a general increase in prices, commonly measured by the Consumer Price Index (CPI)-currently up 8.3 percent over the last year-or the Produce Price Index (PPI)-up 8.7 percent-among other measures. These general price increases are sometimes referred to as an “inflation tax, ” and not without reason.
Detailed explanation-3: -Because profits and wages are received at the end of the period, inflation imposes a tax on both. The inflation tax and the income tax therefore have the same tax base. Relying on the inflation tax, however, would also distort the margin between cash and credit goods.
Detailed explanation-4: -The rate of inflation in the economy is determined by the supply of money. When the supply of money in the economy increases, so does inflation, and vice versa. The central bank’s currency is a liability of both the central bank and the government.
Detailed explanation-5: -Inflation is the rate of increase in prices over a given period of time.