The Inflation Stealth Tax or Deflation tax Cut Inflation is a tax on currency. Prices in the UK have risen by 28.2 % since 2005 (measured by the consumer price index) A £ 20 note that fell down the back of a sofa 10 years ago would now be worth £ 15.60. This is equivalent to a tax of £ 4.40 imposed on the holding of currency. If prices had fallen by the same amount over that period it would be equal to a tax cut on currency holdings of 5.6%. Inflation is a stealth tax. Deflation is a stealth tax cut. Neither were it was not legislated by any parliament.

(a) Who benefits from deflation and who loses out? Analyse separately the effects on households, businesses and government.

(b) If prices fall but wages do not fall or fall by less what happens to unemployment?