638PART TENMONEY AND PRICES IN THE LONG RUNTHE INFLATION TAXIf inflation is so easy to explain, why do countries experience hyperinflation? Thatis, why do the central banks of these countries choose to print so much money thatits value is certain to fall rapidly over time?The answer is that the governments of these countries are using money cre-ation as a way to pay for their spending. When the government wants to buildroads, pay salaries to police officers, or give transfer payments to the poor or el-derly, it first has to raise the necessary funds. Normally, the government does thisby levying taxes, such as income and sales taxes, and by borrowing from the pub-lic by selling government bonds. Yet the government can also pay for spending bysimply printing the money it needs.When the government raises revenue by printing money, it is said to levy aninflation tax.The inflation tax is not exactly like other taxes, however, because noone receives a bill from the government for this tax. Instead, the inflation tax is
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