Suppose that all wages and prices in an economy are indexed to inflation, meaning that

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The inflation tax is not exactly related to the taxes the government levies, but it is completely related to the value of money. Whenever inflation occurs in an economy, the increased price level becomes a burden for the people, which is regarded as inflation tax. For example, if a man does not purchase a product of 50 dollars, then when it becomes 55 dollars, the man will find the extra 5 dollars as inflation tax because the money (50 dollars) he saved before inflation will not increase in his wallet.