Which statement best explains why governments may prefer an inflation tax to some other kind of tax?
A) The inflation tax is easier to impose.
B) The inflation tax reduces inflation.
C) The inflation tax falls mainly on high-income individuals.
D) The inflation tax reduces the real cost of government expenditure.

Question

Quizplus · Accepted Answer

The inflation tax, which essentially reduces the purchasing power of money as prices rise, is easier to impose because it does not require legislation or direct collection mechanisms like other taxes. It occurs as a byproduct of the government printing more money or increasing the money supply, which can be done without direct approval from taxpayers.

Which Statement Best Explains Why Governments May Prefer an Inflation