When Deciding Whether or Not to Monetize a Deficit, a Central

question 41

Multiple Choice

When deciding whether or not to monetize a deficit, a central bank faces a dilemma, since if it decides

• A)not to finance the deficit, higher interest rates may lead to the crowding out of private spending
• B) not to finance the deficit, the domestic currency may depreciate and balance of payments problems may result
• C) to finance the deficit, excessive monetary growth may lead to inflation
• D)to finance the deficit, interest rates may increase too much
• E)both A)and C)

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Definitions:

Relativistic

Pertaining to the concept that points of view have no absolute truth or validity, having only relative, subjective value according to differences in perception and consideration.

Transitional

Referring to a phase or period that serves as a bridge from one state, condition, or activity to another.

Oppositional

In Perry’s theory, a response to late multiplicity characterized by legitimizing multiplicity as one pole of a new kind of dualism and the right–wrong dualism of Position 1 (strict dualism) at the other end of the new continuum. Allows individuals to maintain a dualistic either-or structure in their thinking.

Dualistic

Pertaining to or involving a division into two sharply distinct opposites or contrasting entities, often found in philosophical, spiritual, and cognitive contexts.