Suppose That There Are Two Countries (Ireland and Belgium) Negotiating

question 50

Multiple Choice

Suppose that there are two countries (Ireland and Belgium) negotiating the government debt criteria for the Eurozone. Ireland has a high ratio of government debt to GDP; Belgium has a low ratio of debt to GDP. Which country is likely to prefer a higher inflation target?

• A) Belgium, because the real value of its government debt will approach zero faster than Ireland's over time
• B) Ireland, because higher inflation will cause larger absolute reductions in the real value of its government debt than in Belgium
• C) It makes no difference because high rates of inflation will have proportional effects on the real debt of both countries.
• D) both, because each wants to see its real government debt decline

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Definitions:

American Industry

Refers to the manufacturing and economic sectors of the United States which contribute to its Gross Domestic Product (GDP).

Influence Over Price

Influence over price describes the extent to which a producer or a group of producers can determine the selling price of their goods or services in the market.

Free Enterprise System

The free enterprise system is an economic system where private businesses operate in competition and largely free of state control, based on supply and demand.

Central Planning Agency

An organization tasked with overseeing the economic planning and resource allocation in a centrally planned economy, often encompassing various industrial and service sectors.