Opponents of using the inflation tax to finance government budget deficits argue that:
A)the government can raise taxes to eliminate any budget deficit.
B)inflation is ultimately beneficial in the long run.
C)the inflation tax is a temporary solution that requires ever higher levels of inflation to remain effective.
D)the economic slowdown produced by the inflation tax is more damaging than the hyperinflation that would occur in the absence of the inflation tax.

Question

Quizplus · Accepted Answer

The inflation tax, which refers to the erosion of the real value of money as a result of inflation, is criticized for being a temporary solution that becomes less effective unless higher levels of inflation are continuously applied. This creates a cycle where more inflation is needed to sustain government spending, leading to various economic problems.

Opponents of Using the Inflation Tax to Finance Government Budget