Many economists are worried that a high level of budget deficits may lead to inflationary monetary policies in the future. Could these budget deficits have an effect on the current rate of inflation?

Question

Evangeline Madden

Business

12 December, 12:29

Many economists are worried that a high level of budget deficits may lead to inflationary monetary policies in the future. Could these budget deficits have an effect on the current rate of inflation?

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Answers (1)

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Cassidy Sanford · Answer 1

Answer: Yes, the budget deficit will have on the current rate of inflation.

Explanation:

If the budget deficits have inflated the monetary policy, therefore, the monetary policy will affect the short run of aggregate supply curve. In this scenario, large budget deficits will shift the curve upward due to the increase in expected inflation, which will surely make the current inflation rate to be higher.