Explain how the government gains revenue during inflation
What will be an ideal response?
The government issues securities and buys goods and services with the funds it raises. When the securities are bought by the Fed, money is created and the result is inflation. The government owns the Fed, so when the government pays interest to the Fed, the Fed returns the interest to the government and there is no overall cost to the government from issuing the securities. As a result, the government gets the revenue from selling the securities.
Furthermore, as the incomes of households and firms increase during inflation, they move into a higher marginal tax brackets and consequently pay higher taxes. The higher taxes are another source of government revenue from inflation.
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Budget maximization by bureaus result in a smaller budget than that desire by the median voter
Indicate whether the statement is true or false
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a. Panel D. b. Panel C. c. Panel A. d. Panel B.
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What will be an ideal response?