Assume that Maria Moneybags keeps $1000 in cash in her sock drawer. Use this information to answer questions 9 to 14.
1. Over the first year, the inflation rate is 10%. What is the real inflation tax paid by Maria for this year?
2. Maria keeps the cash in her sock drawer for another year and the inflation rate is 10% again during the second year. What is the real inflation tax paid by Maria for the second year?
3. Now assume that the inflation rate was 25% in the first year and 25% again in the second year. Recalculate your answer to question 9 using this higher inflation rate.
4. Recalculate your answer to question 10 assuming that the inflation rate was 25% in both the first year and the second year.
5. How much different is Maria's total real inflation tax over the course of the two years when the inflation rate is 25% compared to when the inflation rate is 10%?
6. Use your answer to question 13 to explain why hyperinflation is such a problem.