During the Revolutionary War, the American colonies could not raise enough tax revenue to fund the war effort fully; to make up the difference, the colonies decided to print more money. Printing money to cover expenditures is sometimes referred to as an inflation tax.
Who is being taxed when more money is printed?
1. Banks only
2. Families of soldiers in active duty
3. Anyone who is holding money
Answer : The answer is option 3.
When more money is printed then the money supply increase in the economy. As a result, the price level rise. Due to higher price level the value of money decrease. Hence the government impose inflation tax on anyone who holds money. Therefore, option 3 is correct.
During the Revolutionary War, the American colonies could not raise enough tax revenue to fund the...