Which of the following is true regarding the effect of deficits from 1980-2005 in the U.S.?
A)They did not lead to substantial inflation because the Fed did not monetize the deficits.
B)They did not lead to substantial inflation because the Fed did monetize the deficits.
C)They led to substantial inflation because the Fed did not monetize the deficits.
D)They led to substantial inflation because the Fed did monetize the deficits.

Question

Quizplus · Accepted Answer

Deficits from 1980-2005 in the U.S. did not lead to substantial inflation because the Fed did not monetize the deficits. Monetizing deficits means printing new money to finance them, which can lead to inflation due to an excess of money supply in the economy. However, the Fed did not pursue this strategy during this time period, which helped control inflation.

Which of the Following Is True Regarding the Effect of Deficits