Richard Damra Thursday, February 28, 2013
Econ 1BB3 – Chapter 11
Why is inflation bad for the economy? Income
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 is inflation that exceeds 50% per month
Example: Suppose that a large cup of coffee at Tim Horton’s costs $1.75 in January 1 .
Hyperinflation is bad for any economy.
Nominal interest rate = real interest rate + inflat