If we create a diagram with inflation tax revenue measured on the vertical axis and the inflation rate measured on the horizontal axis, we will get a curve that
A)is U-shaped
B)is steadily increasing
C) is steadily declining
D)initially increases but then decreases
E)none of the above

Question

Quizplus · Accepted Answer

The diagram would show a curve that initially increases as the inflation rate rises and more revenue is collected through the inflation tax, but then it would reach a point where the negative effects of inflation outweigh the benefits of collecting revenue, causing the curve to decline. This is due to the fact that as inflation continues to rise, it can lead to decreased investment, reduced consumer spending, and increased uncertainty in the economy.

If We Create a Diagram with Inflation Tax Revenue Measured