Tax Distortion Refers to the Cost of Inflation That Comes

question 83

Multiple Choice

Tax distortion refers to the cost of inflation that comes from:

• A) the money, time, and opportunity used to change prices to keep pace with inflation.
• B) the time, money, and effort one has to spend managing cash in the face of inflation.
• C) the higher taxes one must pay when earning a greater dollar amount, even though real purchasing power hasn't changed.
• D) the labor costs associated with inflation.

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Definitions:

Extra Payments

Additional payments made over the required minimum payment on debts like loans or mortgages, aimed at reducing the principal balance more quickly.

Total Interest

The total amount of interest paid over the lifetime of a loan.

Life of the Loan

The duration over which a borrower is required to make payments until the loan is paid off in full.

Compounded Monthly

A process where interest earned is added to the principal, so that from that moment on, interest is earned on interest, recalculated on a monthly basis.