Conventional budget accounting practices tend to overstate deficits in inflationary periods because they
A)ignore the inflation tax.
B)confuse repayment of principal with real interest expenditures.
C)double count some expenditures.
D)understate real interest rates.

Question

Quizplus · Accepted Answer

Conventional budget accounting practices tend to overstate deficits in inflationary periods because they confuse repayment of principal with real interest expenditures. This occurs because the nominal value of debt repayment includes both the repayment of the principal and the interest. In inflationary periods, the real value of the principal decreases, but conventional accounting does not adjust for this, effectively overstating the real burden of the debt repayment.

Conventional Budget Accounting Practices Tend to Overstate Deficits in Inflationary