In dealing with their financing needs, developing countries have found that the inflation tax provides:
A)both a short-run and a long-run solution.
B)neither a short-run nor a long-run solution.
C)a short-run solution but not a long-run solution.
D)a long-run solution but not a short-run solution.

Question

Quizplus · Accepted Answer

The inflation tax, which refers to the revenue generated by the government through printing money and the resulting inflation, can provide a short-term solution to financing needs by increasing government revenue without immediate direct taxation. However, in the long run, it can lead to higher inflation rates, eroding purchasing power and potentially leading to economic instability, making it unsustainable as a long-term solution.

In Dealing with Their Financing Needs, Developing Countries Have Found