Let's assume that inflation is currently 2% (the middle of the target band). One of the costs of inflation is fiscal drag (or bracket creep).Explain the following questions usingown words:

(i) What is fiscal drag and how does it occur?

(ii) How does inflation combine with the progressive income tax system to create fiscal drag?

(iii) Why is fiscal drag a disadvantage to salary and wage earners?

(iv) What policy would you suggest to reduce fiscal drag?