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Econ 1BB3 - Chapter 11 Part 2.docx

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Department
Economics
Course
ECON 1BB3
Professor
Bridget O' Shaughnessy
Semester
Winter

Description
Richard Damra Thursday, February 28, 2013 Econ 1BB3 – Chapter 11 Why is inflation bad for the economy? Income Inflation Tax  There are 3 ways for a government to raise revenue: o 1. Direct Taxes o 2. Borrowing – future tax o 3. Printing money – tax on money (causes price to go up)  If prices go up the dollars we have buy less, thus creating a tax on money, causing the value of money to go down. Hyperinflation  Hyperinflation is inflation that exceeds 50% per month st  Example: Suppose that a large cup of coffee at Tim Horton’s costs $1.75 in January 1 .   Hyperinflation is bad for any economy. Fisher Effect  Nominal interest rate = real interest rate + inflat
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