Question

Inflation is 20 percent. Debt is $2 trillion. The nominal deficit is $300 billion. If the expected inflation rate falls from 20 percent to 15 percent, by how much does the real deficit change? Expected inflation does not change the real deficit. The real deficit falls by 15 percent. The real deficit rises by 15 percent. The effects of a change in expected inflation cannot be quantified.

Answer 1

Answer:

Option A is correct ( Expected inflation does not change the real deficit)

Explanation:

Real deficits are real variable and it is not affected by the change in inflation rate, because inflation is nominal variable. So, nominal value of deficits can be affected, but real value of deficits will remain same.