Which of the following best characterizes the inflation tax?
A)The inflation tax transfers wealth from the government to households.
B)The inflation tax is the increase in income taxes due to lack of indexation.
C)The inflation tax is a tax on everyone who holds money.
D)The inflation tax is illegal.

Question

Quizplus · Accepted Answer

The inflation tax is the reduction in the purchasing power of money that results from inflation. It is a tax on anyone who holds money because the value of their money decreases over time. It does not transfer wealth from the government to households and is not related to income tax indexation. The inflation tax is not illegal but is a result of the government's monetary policy decisions.

Which of the Following Best Characterizes the Inflation Tax