Inflation is a tax because as the government ________ the quantity of money, the price level ________, and the purchasing power of households' money ________.

Question

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Inflation is a tax because as the government increases the quantity of money, the price level rises, and the purchasing power of households' money decreases. This means that households need to spend more money to maintain the same standard of living, effectively reducing their purchasing power or acting as a tax on their income. Option A is incorrect as it implies that the increase in the quantity of money results in an increase in purchasing power, which is not true. Option B is incorrect as it suggests that a decrease in the quantity of money would lead to an increase in purchasing power, which is also not true. Option D is incorrect as it suggests that a decrease in the quantity of money would lead to a rise in prices, which is not true. Option E is incorrect as it suggests that there is no change in the quantity of money, but the price level still rises, which is not true.

Inflation Is a Tax Because as the Government ________ the Quantity