Home › AP Macroeconomics › Economics › Inflation › Indexed bonds are raised as a puzzle because a g…
Indexed bonds are raised as a puzzle because a government that borrows is said to gain from:
AExpected deflation
BFalling tax revenue
CRising unemployment
DUnexpected inflation
Answer & Solution
Correct answer: D. Unexpected inflation
1. Inflation redistributes between borrowers and lenders.
2. A borrower repays in money that has lost value when prices rise.
3. The question asked is why a government would offer indexed bonds.
4. It is asked given that a government gains from unexpected inflation when it borrows.
5. Indexing the bond removes that gain.
_Source: OpenStax Principles of Macroeconomics for AP Courses 2e (CC BY 4.0), Ch 8 'Inflation'_
Related questions
The CPI and PPI differ chiefly in whose prices they track, with the PPI tracking prices paSubstitution bias arises because a fixed basket cannot capture buyers switching toward gooAn economy where prices are falling rather than rising is experiencing:The cost of living is described as much higher in New York City than in:A little inflation is described as nibbling away at which measure, helping it decline if nA few months in 2009 are described as having been:Expressing inflation figures as index numbers has the stated advantage of allowing easier:Which two problems are named as arising with basket-based price measurement?