Question #19

When the government borrows from the non-government sector it eventually has to pay the bonds back on maturity. This will

• be inflationary if the government payments to bond holders at maturity add more to nominal aggregate demand than the real economy can support given other policy settings.
• be inflationary if by the time the bonds mature the economy is growing strongly so there will be too much money floating about.
• not be inflationary because the sovereign government just has to credit the bank accounts of those who hold the bonds to repay them.

Answer #113

Answer: be inflationary if the government payments to bond holders at maturity add more to nominal aggregate demand than the real economy can support given other policy settings.

Explanation

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