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      Question

      By _____________ economists refer to an unanticipated

      inflation that reduces the real value of outstanding government debt.
      A Inflation tax Correct Answer Incorrect Answer
      B Cost of inflation Correct Answer Incorrect Answer
      C Seigniorage Correct Answer Incorrect Answer
      D Unanticipated default Correct Answer Incorrect Answer

      Solution

      If the inflation were anticipated, then the interest rate on government bonds would be higher to protect the bond holders from having to take a capital loss from the loss of real value of the bonds through the inflation.

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