Proper inflation accounting is necessary to measure the size of the real deficit because
A)as a lender, the government gains from inflation.
B)otherwise, the deficit is understated in inflationary times.
C)the government is a borrower that pays back dollars of less real value in inflationary times.
D)interest payments tend to fall in inflationary times.

Question

Quizplus · Accepted Answer

In inflationary times, the real value of money decreases, so when the government repays its debt, it does so with money that is worth less in real terms, effectively reducing the real burden of its debt. Proper inflation accounting is necessary to accurately measure the real deficit, taking into account this reduction in real value.

Proper Inflation Accounting Is Necessary to Measure the Size of the Real