A government with debt has an incentive to create inflation to eliminate some debt. Why might it not always do this? I. The fisher effect II. The government cannot create inflation III. This may upset bond purchasers who are also voters IV. Borrowers and lenders come to expect increases in inflation, which increases the nominal interest rate III only I, III, and IV II and III only All of these above
A government with debt has an incentive to create inflation to eliminate some debt. Why might it not always do this? I. The fisher effect II. The government cannot create inflation III. This may upset bond purchasers who are also voters IV. Borrowers and lenders come to expect increases in inflation, which increases the nominal interest rate III only I, III, and IV II and III only All of these above
Chapter7: Unemployment And Inflation
Section: Chapter Questions
Problem 4.10P
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A government with debt has an incentive to create inflation to eliminate some debt. Why might it not always do this?
I. The fisher effect
II. The government cannot create inflation
III. This may upset bond purchasers who are also voters
IV. Borrowers and lenders come to expect increases in inflation, which increases the nominal interest rate
III only
I, III, and IV
II and III only
All of these above
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