What is the inflation tax, and how might it explain the creation of inflation by a central bank? Suppose a resident of Canada buys some machine tools from a company in Japan. Explain why and in what directions this changes Canada net exports and Canada net capital outflow.

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Questions:
What is the inflation tax, and how might it explain the creation of inflation by a central bank?
Suppose a resident of Canada buys some machine tools from a company in Japan. Explain why and in what directions this changes Canada net exports and Canada net capital outflow.

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