Question

Suppose the government is heavily in debt. Why might it be tempting for the fiscal policymakers to sell additional bonds to the central bank in a move that it knows would be inflationary?

Answer 1

Answer:

Inflation is a period in which the prices of goods and services goes higher than the normal prices at that point in time due to a host of factors.

Inflation will benefit the fiscal policy makers as there will be a reduction in the real value of the debt accrued. The reduction in the real value will ensure that repayment is easier.

This is also because inflation leads to increase in revenue and taxes. Inflation helps to ease the debt burden of the government.