a) Describe and explain the relationship between the real rate of return of fiat money and inflation. How does a growing money supply affect inflation? Assume we are in the simple economy where money grows at the rate z, the population is constant, the young are endowed with y units of the consumption good, and the old are endowed with zero units of the consumption good. 

b) Explain why inflation is not an efficient tax. Support your answer with the use of budget constraints and figures. Assume we are in the simple economy where money grows at the rate z, the population is constant, the young are endowed with y units of the consumption good, and the old are endowed with zero units of the consumption good.

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a Relationship between real rate of return of fiat money and inflation The real rate of return of fiat money is the rate of return on an investment adjusted for inflation In other words it is the retu... View the full answer