1. inflation and taxes
SSEPF3: The student will explain how changes in monetary and fiscal policy can have an impact on an individual’s spending and saving choices

2. Causes of Inflation
Rapid rise in aggregate demand (AD) => demand pull inflation
Rapid rise in aggregate supply (AS) => cost pull inflation

3. Effects of Inflation High inflation decreases purchasing power
Savings decline => banks suffer

4. Who’s Most Affected by Inflation?
Low-income and people on fixed incomes (retired)

5. Who Benefits from Inflation?
People who owe money (value of money paid back is less than the value of money originally borrowed)

6. Tax Structures #1 – Proportional Taxes “Flat Tax”
Everyone pays the same percentage of their income
Social Security

7. #2 – Progressive Taxes “Graduated” tax rate
Percentage of income taxed increases as income increases
Personal income tax

8. #3 – Regressive Taxes
A tax that takes a larger percentage from low-income people than from high-income people
Sales tax, property tax, excise tax
For example, if a person has $10 of income and must pay $1 of tax on a package of cigarettes, this represents 10% of the person's income. If the person has $20 of income, this $1 tax only represents 5% of that person's income.

9. Practice #1 Type: _____________ Income % of Income Amount of Tax Paid
$30,000
25%
15%
$60,000
20%
$100,000

10. Practice #2 Income Amount of Tax % of Income $25,000 $6,250 25%
$50,000
$10,000
20%
$100,000
$15,000
15%
Which kind of tax does the data in the table illustrate?
A. proportional
B. regressive
C. progressive
D. property

11. Practice #3
Which of the following might benefit from spiraling rates of inflation? A. an investor B. a saver C. someone who has lent out money D. someone who has borrowed money