People can avoid the inflation tax by reducing their real money balances.

Question

Quizplus · Accepted Answer

Inflation tax occurs when the government increases the money supply, leading to inflation. As prices rise, the purchasing power of money declines. Therefore, people can avoid losing value to inflation by reducing their real money balances by investing in assets that provide higher returns than inflation or by spending the money on goods and services before prices rise further.

People Can Avoid the Inflation Tax by Reducing Their Real