If the private sector wishes to hold a constant quantity of real government bonds,inflation requires that the private sector continuously ________ those bonds,so that the government ends up having to pay out interest on net equal to the ________ interest rate times the bonds outstanding.

Question

Quizplus · Accepted Answer

If the private sector wants to maintain a constant quantity of real government bonds, they need to buy more bonds to offset the erosion of value due to inflation. The government then pays interest based on the real interest rate, which accounts for inflation.

If the Private Sector Wishes to Hold a Constant Quantity