Becky holds $30,000 as money.After a year during which inflation was 5 percent a year, the inflation tax over that year was
A) $500.
B) $1,000.
C) $1,500.
D) $3,000.
E) $5.

Question

Quizplus · Accepted Answer

Inflation tax is the loss of purchasing power due to the decrease in the value of currency caused by inflation. As inflation was 5%, the value of Becky's $30,000 was reduced to $28,500 in terms of purchasing power. Therefore, the inflation tax over the year was $30,000 - $28,500 = $1,500. Thus, the best choice is C.

Becky Holds $30,000 as Money