he letter of the choice that best completes the statement or answers the questio

Question

he letter of the choice that best completes the statement or answers the question. The inflation tax refers to: a. The revenue a government creates by printing money b. A tax credit designed to help the government fight inflation. c. The idea that, other things the same, an increase in the tax rate raises the inflation rate. d. Taxes being indexed for inflation. 2. Crowding out occurs when investment declines because: a. A budget deficit makes interest rates rise b. A budget deficit makes interest rates fall. c. A budget surplus makes interest rates rise. d. A budget surplus makes interest rates fall.

Explanation / Answer

1. (d) Taxes being indexed for inflation. Because inflation tax  refers to the financial loss of value suffered by holders of cash and (if inflation is unexpected) fixed-rate bonds, as well those on fixed income (not indexed to inflation), due to the effects of inflation; or capital gains tax resulting from inflation.

2. (a) A budget deficit makes interest rate rise.

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