An inflation tax is

Question

a. an explicit tax paid quarterly by businesses based on the amount of increase in the prices of their products.
b. a tax on people who hold money.
c. a tax on people who hold interest-bearing savings accounts.
d. usually employed by governments with balanced budgets.
e. none of the above.

Answer 1

The correct answer is b. a tax on people who hold money.

An inflation tax refers to the loss of purchasing power that occurs when the government increases the money supply, leading to inflation. When inflation rises, the real value of money held by individuals decreases, effectively acting as a tax on those who hold cash or non-interest-bearing assets.