Proponents of Using the Inflation Tax to Finance Government Budget

question 38

Multiple Choice

Proponents of using the inflation tax to finance government budget deficits argue that:

• A)these deficits would be far worse otherwise.
• B)inflation is ultimately beneficial in the long run.
• C)while inflation is undesirable, the breakdown of the economy that would occur in the absence of an inflation tax would be worse.
• D)the economic slowdown produced by the inflation tax is preferable to the hyperinflation that would occur in the absence of the inflation tax.

---

Definitions:

Treatment Plant

A facility where pollutants are removed from water, air, or waste to reduce environmental impact and protect public health.

Filter

A device or process that removes unwanted parts from a substance or signal.

Negotiate Costlessly

The theoretical scenario wherein parties can reach agreements without incurring any transaction or communication costs.

Social Discount Rate

A rate used in cost-benefit analysis to account for the time value of public projects' benefits and costs, reflecting society's preference for immediate benefits over future ones.