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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

Solutions

Chapter
Section
Chapter 17, Problem 4CQQ
Textbook Problem
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Hyperinflations occur when the government runs a large budget _________, which the central bank finances with a substantial monetary___________.

a. deficit, contraction

b. deficit, expansion

c. surplus, contraction

d. surplus, expansion

Expert Solution
To determine
Cause of hyperinflation.

Explanation of Solution

Option (b):

Almost all hyperinflations follow the same pattern where the government has a high level of spending and inadequate tax revenue to pay for its spending. As a result, the government turns to printing money to pay for its spending. Thus, hyperinflation occurs when it has a large budget deficit and central bank finances through monetary expansions. Thus, option ‘b’ is correct.

Option (a):

To pay for spending of the government, the central government finances through monetary expansion such as printing money...

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