Why the government must be overestimating the revenue

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Suppose the money base is 10 percent of GDP. Suppose also that the government is considering raising the inflation rate from 0 to 10 percent per annum and believes that doing so will increase government revenue by 1 percent of GDP. Explain why the government must be overestimating the revenue it will receive from the resulting inflation tax.

Reference no: EM131136181

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