Explain why inflation is a way for governments to default on a portion of the debts they owe.
What will be an ideal response?
If a government forces the central bank to buy its bonds the quantity of money in circulation increases, sparking inflation. This rise in inflation benefits fiscal policymakers because it reduces the value of the bonds the government has already sold, making them easier to repay. In effect, because payment will occur in units of money that have lost value, the government has defaulted on a portion of the debts it owes.
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A key element of the classical growth theory is that
A) low taxes promote economic growth. B) an increase in population leads to increase in labor supply and a decline in real GDP per person. C) economic growth can be sustained as long as government intervention does not occur. D) increases in technology drive economic growth. E) market forces drive economic growth.
If pizza and tacos are substitutes, a decrease in the price of tacos would lead to a
A) decrease in the demand curve for pizza. B) decrease in the quantity demanded of pizza. C) decrease in the price of pizza. D) All of the above.
If the demand for online banking increases, we would expect to see the
A) supply of workers that produce online-banking services to increase. B) supply of workers that produce online-banking services to decrease. C) demand for workers that produce online-banking services to decrease. D) demand for workers that produce online-banking services to increase.
An asset whose value is based on the value of another asset is called a:
A. derivative. B. dividend. C. stock. D. bond.