Inflation accounting for the debt argues which of the following?
A)The change in the value of the debt when inflation occurs complicates income tax codes and is the reason for the tax changes of 2003.
B)The portion of interest payments that compensate lenders for inflation should be considered repayment of debt rather than interest expense.
C)The debt represents an inflationary problem, and grows more rapidly when people fear inflation.
D)The portion of the deficit dedicated to repayment of interest on the debt should not be considered part of the deficit, because it is a transfer.

Question

Quizplus · Accepted Answer

Inflation accounting for debt argues that the portion of interest payments that compensates lenders for inflation should be considered repayment of debt rather than interest expense. This is because in times of inflation, the true value of the debt decreases, and so the portion of interest payments that accounts for inflation is essentially reducing the principal amount of the debt. Therefore, it is argued that this portion should be considered repayment of debt rather than interest expense.

Inflation Accounting for the Debt Argues Which of the Following