Question

Why doesn’t the fact that the “inflation solution” is only a temporary solution stop many developing countries from using it?

Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers.

	Governments often feel that they must increase government expenditures or be voted out of office.

	The "inflation solution" can be a permanent solution if done correctly.

	Central banks in developing countries often do not enjoy full independence, and are used by corrupt governments to finance deficit spending.

Governments act to maintain their positions in power, and often feel that in order to do so, they have no choice but to print more money.

Answer 1

1. Government often feel that they must increase government expenditure or to be voted out of the office.

3. Central Banks in developing countries often do not enhen full independence and we are used by corrupt government to refinance deficit spending.

4 . Government act to maintain their position in power and often feel that in order to do so,they have no choice but to print money.

In developing countries tax revenue is limited but government follow more of political compulsions rather than economic consideration so it's lead to financial deficit. To over come it government had to borrow loans or to increase taxes, after increases but revenue generated is limited hence they had to go other means to refinance deficit. So Central Banks losses its autonomy and forced by governments to refinance or monetize by providing funds and clearing loans by printing extra money. If government don't refinance but increase taxes then there will be threat to go out of office by voting.

So developing countries faces backslash due to political consideration.