Proponents of using the inflation tax to finance government budget deficits argue that:
A)these deficits would be far worse otherwise.
B)inflation is ultimately beneficial in the long run.
C)while inflation is undesirable, the breakdown of the economy that would occur in the absence of an inflation tax would be worse.
D)the economic slowdown produced by the inflation tax is preferable to the hyperinflation that would occur in the absence of the inflation tax.

Question

Quizplus · Accepted Answer

The argument for using the inflation tax to finance government budget deficits is based on the lesser of two evils principle. Proponents argue that while inflation is undesirable, the alternative—potentially a complete breakdown of the economy if the government cannot finance its deficits—would be worse. This choice reflects the idea that the inflation tax is a tool to avoid more catastrophic economic outcomes.

Proponents of Using the Inflation Tax to Finance Government Budget