redo the previous question, assuming an inflation rate of 25%, and answer the following questions. round answers to two places after the decimal point when necessary. do not round intermediate calculations of the price level. a. maria moneybags keeps $1,000 in her sock drawer for a year. over the year, the inflation rate is 25%. what is the real inflation tax paid by maria for this year?

The economic disadvantage experienced by holders of cash and cash equivalents in a certain currency denomination constitutes a hidden tax that devalues money owing to inflation.

When a government prints money to cover a deficit, it imposes an inflation tax. Owners of fictitious assets, such as money, are responsible for paying the tax. When a central bank has a commitment problem and wishes to utilize inflation to boost output, that is one explanation for inflation. As a result, inflation is referred to as a hidden tax. Taxes and inflation both boost revenue for the government while eroding your purchasing power.

The real inflation tax paid by Maria is $1,000 × 0.25 = $250

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