You live in an economy experiencing high inflation. In this economy the price level P(t) has doubled after one year, that is, the price level is 2P(t) at the end of year t. Your endowment of cash at the beginning of year t is $50,000.

A) How much money you have to add to your money balances in order to maintain the initial purchasing power of your cash endowment? Explain briefly. Show Explanation

B) How much were you taxed by the inflation tax, assuming that you kept the $50,000 under your mattress during the whole year t?

C) If you bought one Bitcoin at a total cost of $50,000 at the beginning of year t and sold it by $87,500 at the end of year t, what was the real rate of return on your investment?