Economics of Macro Issues 7th Edition by Roger LeRoy Miller,Daniel Benjamin

Exercise 2

Suppose a nation has $100 billion in currency outstanding and $1 trillion in bonds, 30 percent of which are owned by agencies of ; the government. Assume that all the bonds are payable in the country's unit of account. Calculate how much revenue the government would collect in the form of an inflation tax if the inflation rate in the country was 2 percent. How much extra revenue from the inflation tax would be collected if the inflation rate was instead 5 percent? Show your calculations.