Question

People can reduce the inflation tax by a. increasing deductions on their income tax. b. reducing...

People can reduce the inflation tax by a. increasing deductions on their income tax. b. reducing savings. c. None of the above is correct. d. reducing cash holdings

When the value of money is on the vertical axis, the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

a. True

b. False
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Homework Answers

Answer #1

1. Option D.

  • Inflation tax refers to the tax incured by the people for holding money in their hands at the time of inflation in the economy.
  • Therefore, Inorder to reduce this tax, they must reduce the amount of cash held by them and must Increase their spending.

2. True.

  • When the value of money is on the vertical axis, the money supply also tends to be on the vertical axis as the economys money supply is in the hands of federal reserve.
  • The money supply then Increases and shifts to the right when the Fed purchases bonds from the open Markets.
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