Question

In: Economics

Sustained inflation can result from government budget deficits whether or not the deficits are persistent and...

Sustained inflation can result from government budget deficits

whether or not the deficits are persistent and whether or not the deficits are financed only by an increase in government bond holdings by the public.

whether or not the deficits are persistent, but only if the deficits are financed at least in part by money creation.

only if deficits are persistent, but whether or not the deficits are financed by an increase in government bond holdings by the public.

only if deficits are persistent and financed at least in part by money creation.

Solutions

Expert Solution

Sustained inflation can result from government budget deficits only if deficits are persistent and financed at least in part by money creation.

Explanation: From quantity theory of money equation (MV = PY), for sustained inflation to occur, there must be sustained higher growth of money supply than growth in real output. This high rate of inrease in money supply can occur due to persistent fiscal deficits which are at least partly financed by money creation.

Rahul Sunny answered 1 year ago
Next > < Previous

Related Solutions

Since the 1970s, the U.S. Government has run persistent budget deficits, even during periods of strong...
Since the 1970s, the U.S. Government has run persistent budget deficits, even during periods of strong economic growth and despite bipartisan agreement that deficit reduction is a priority. Briefly discuss some probable causes of persistent federal budget deficits using the principles of public choice theory described by Calcagno (2010).
How can you explain a persistent/sustained US trade deficit?
How can you explain a persistent/sustained US trade deficit?
How can you explain a persistent/sustained US trade deficit?
How can you explain a persistent/sustained US trade deficit?
Budget deficits and government debt are within the scope of
Budget deficits and government debt are within the scope of Select one: a. microeconomics. b. both microeconomics and macroeconomics. c. macroeconomics.
Commentators often refer to government budget deficits and trade deficits as "twin deficits". Explain how the...
Commentators often refer to government budget deficits and trade deficits as "twin deficits". Explain how the two types of deficit are related.
What are the disadvantages if the government expenditures are finances by budget deficits?
What are the disadvantages if the government expenditures are finances by budget deficits?
Explain how the Government of Canada finances its budget deficits.
Explain how the Government of Canada finances its budget deficits.
Read the article from ABC 'Why Australia's government debts and budget deficits are here to stay'...
Read the article from ABC 'Why Australia's government debts and budget deficits are here to stay' and answer the following questions: a) Using the AD-AS framework discussed in class, demonstrate the impacts of spending on infrastructure and a tax cut on output and inflation in the shortrun. b) Also explain the likely impact of spending on infrastructure on output in the long-run and show this on your AS-AD diagram. c) Explain (using your own words) what would happen to unemployment...
How budget deficits and national debt are defined? Is it a good policy for the government...
How budget deficits and national debt are defined? Is it a good policy for the government to create budget deficit? Why and why not?
How budget deficits and national debt are defined? Is it a good policy for the government...
How budget deficits and national debt are defined? Is it a good policy for the government to create budget deficit? Why and why not?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT