The inflation tax:
A)is collected by the government every time people use money for transaction
B)transfers wealth from government to households
C)is paid by everyone who holds money
D)all of the above

Question

Quizplus · Accepted Answer

The inflation tax is the devaluation of currency due to inflation, which reduces the purchasing power of money held by individuals. Therefore, it is paid by everyone who holds money regardless of whether they engage in transactions or not. Option A is incorrect because the government does not collect a tax, but rather, people bear the cost of their money's reduced purchasing power due to inflation. Option B is incorrect because wealth is not transferred, but rather, the value of currency is reduced.

The Inflation Tax