The "official measure" of the deficit (the one reported by the government):
A) overestimates the real budget deficit whenever the inflation rate is positive.
B) tells us the change in government nominal debt.
C) is equal to nominal interest payments on the debt plus the primary deficit.
D) All of the above.
E) None of the above.

Question

Quizplus · Accepted Answer

The "official measure" of the deficit reported by the government indeed overestimates the real budget deficit when there is positive inflation, as it does not adjust for the decrease in the real value of outstanding debt. It tells us the change in government nominal debt, which is the face value without adjusting for inflation. Additionally, it is equal to nominal interest payments on the debt plus the primary deficit, where the primary deficit is the difference between government spending and revenue, excluding interest payments.

The "Official Measure" of the Deficit (The One Reported by the Government)