Inflation decreases the real value of the debt since the same amount of money owed has a lower purchasing power. This is because the value of money decreases during inflationary periods. As a result, lenders are paid back with money that has decreased in value, which effectively reduces the burden of the debt on the borrower.

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Inflation

Question 10

Multiple Choice

Inflation

A) increases the real value of the debt.
B) has no impact on the debt.
C) decreases the real value of the debt.
D) is always factored into any calculations of deficits or surpluses.

Correct Answer: