Question

Why do governments sometimes pay for their spending by printing more money? Why do economists refer...

Why do governments sometimes pay for their spending by printing more money? Why do economists refer to this as an ‘inflation tax” that can result in very harmful results?

Homework Answers

Answer #1

Answer - The government sometimes pay for the spending by printing more money. This is called deficit fianancing. In many cases , the government does not have the adequate tax revenues , it may have the limited capacity and resources to borrow. In such situations , to finance the spending , the government has to print more currency.

This is called the inflation tax. This is because the printing of money has a negative impact upon the economy. By printing the money , the money supply in the economy increases , leading to inflation. The money with people increase ans hence the value of money declines. This has to be paid in form of increased taxes.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Why do governments sometimes pay for their spending by printing more money? Why do economists refer...
Why do governments sometimes pay for their spending by printing more money? Why do economists refer to this as an ‘inflation tax” that can result in very harmful results?
Why do governments sometimes pay for their spending by printing more money? Why do economists refer...
Why do governments sometimes pay for their spending by printing more money? Why do economists refer to this as an ‘inflation tax” that can result in very harmful results? must be at least 250 words
historically, some governments have relied on the revenue generated from printing currenct to finance government spending....
historically, some governments have relied on the revenue generated from printing currenct to finance government spending. give two example of governments relying on paper currency to finance wartime expenditures. what do you expect happened to inflation rates during these historical episodes?
Why do governments borrow money and pay interest when they could print all the interest-free money...
Why do governments borrow money and pay interest when they could print all the interest-free money they need themselves?
Do you think there is a real threat that the US might resort to printing money...
Do you think there is a real threat that the US might resort to printing money if tax revenue would become insufficient to cover the desired spending by the government? Why or why not?
why do economists use money as the primary measure of the strength and growth of the...
why do economists use money as the primary measure of the strength and growth of the economy?
Why do many economists believe that changes in the Money supply affect the economy in the...
Why do many economists believe that changes in the Money supply affect the economy in the short run but not in the long run?
Review the chapter on inflation and answer the following questions. Why do some economists claim that...
Review the chapter on inflation and answer the following questions. Why do some economists claim that we should not worry too much about inflation? Other economists think that there are significant costs associated with inflation above 2-3%. What are they? Briefly discuss can these be answered succinctly ?
If someone argues that increasing money supply is the only factor that causes inflation, do you...
If someone argues that increasing money supply is the only factor that causes inflation, do you agree with this argument? If yes, please explain how money supply results in inflation. If no, what are other factors that can result in inflation? And how do they influence inflation?
Why do governments place restrictions on immigration? Discuss examples of disputes about immigration (more or fewer...
Why do governments place restrictions on immigration? Discuss examples of disputes about immigration (more or fewer restrictions, refugee resettlement) that have occurred in recent years.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT