Nick Baker
9/18/2012
Macroeconomics
Inflation is a Tax Inflation is how overall change in prices is measure. Inflation has been in effect in America since the beginning of its existence. Even though inflation measures the overall change in prices of a country, all money goes up with it. Workers salaries have gone up dramatically. More money has steadily gone into the economy as inflation rises. More money in the economy equals more inflation. A tax is a charge the government puts on items people buy. This is a way for the government to make money (Mankiw, 2009). One way inflation can be an example of tax is how inflation raises money for the government. The biggest way how inflation raises money is by printing it. The government can actually make money off of printing money and this is called seigniorage. The more money that is printed, the more money there is in the economy, and this causes inflation. This is why they call it an inflation tax. People who pay the tax are citizens who actually have the money. Inflation causes the money they have to be worth less. That is almost like a tax on people just for having money. Hyperinflation is just like inflation but at a faster and more dramatic rate. Countries that experience hyperinflation tend to make a lot of money off of printing money. Countries with smaller inflation rates do not make as much as these countries (Mankiw, 2009). Investing in something like a bond is a good example of how