Answer the following questions about the (real) inflation tax, assuming that the price

Chapter 0, Problem 9

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Answer the following questions about the (real) inflation tax, assuming that the price level starts at 1. a. Maria Moneybags keeps $1,000 in her sock drawer for a year. Over the year, the inflation rate is 10%. What is the real inflation tax paid by Maria for this year? b.Maria continues to keep the $1,000 in her drawer for a secondyear. What is the real value of this $1,000 at the beginningof the second year? Over the year, the inflation rate isagain 10%. What is the real inflation tax paid by Maria forthe second year?c. For a third year, Maria keeps the $1,000 in the drawer.What is the real value of this $1,000 at the beginning ofthe third year? Over the year, the inflation rate is again10%. What is the real inflation tax paid by Maria for thethird year?d.After three years, what is the cumulative real inflationtax paid?e. Redo parts a through d with an inflation rate of 25%. Whyis hyperinflation such a problem?