Economics Inflation Questions
The impact of inflation on government debt is that it can potentially reduce the real value of the debt. When there is inflation, the general price level of goods and services increases, which means that the value of money decreases. As a result, the government's debt burden, which is denominated in a fixed currency amount, becomes relatively smaller in real terms. This can make it easier for the government to repay its debt obligations as the real value of the debt decreases over time. However, it is important to note that high inflation rates can also lead to higher interest rates, which can increase the cost of borrowing for the government and potentially offset the benefits of inflation on the debt.