Answer to Question #311200 in Macroeconomics for Isay

Question

During the Revolutionary War, the American colonies could not raise enough tax revenue to fully fund the war effort. To make up the difference, the colonies decided to print more money. Printing money to cover expenditures is sometimes referred to as an inflation tax. Who do you think is being taxed when more money is printed? Why?

Answer 1

The typical person will be taxed if the government prints more money. This is because rising prices lead to higher interest rates and currency depreciation over time. As a result, customers carry less cash on them and visit banking firms and markets more frequently.