uppose that a country’s inflation rate increases sharply. Explain what happens to inflation tax on the...
uppose that a country’s inflation rate increases sharply. Explain what happens to inflation tax on the holders of money? (5 marks). Can you think of anyway in which holders of savings accounts are hurt by the increases in the inflation Rate? (5 marks)
Homework Answers
As the inflation in the market has increased this will increase the inflation tax, this is not exactly a tax but the cost that the cost holder pays when they hold money in the market. the higher the inflation in the market the higher the inflation tax will be.
The people saving money will see a decline in the purchaing power of the money that they are holding. Inflation in the market will reduce the purchasing power of the money expecially if the interest rate that they are earnign in the market is less than the inflation rate.
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