Question

Explain how inflation and faster growth might lower Italy’s government debt ratio and why neither is an attractive option.

Answer 1

The inflation is a situation where the price rise in the economy and it reduces the purchasing power of the consumer.
Sometimes the slowest rate of rise in the inflation is good for the economy, but if it rises continuously then it will create a problem in the economy.
The relationship between the inflation and the economic growth is sometime positive. It means if the inflation is rising in the economy, then it means there must be a rise in the economic growth because the inflation is related to the high demand of goods in the economy and therefore the productive efficiency rises to fulfil the rising needs of the economy.
Italy’s government debt ratio is managed by the excessive supply of the money in the economy and if there is an excessive rise of money supply in the economy then it will raise the inflation in the economy so here the economic growth is high upto a certiain level after sometime it will decreases to a average or sometime below average and this is the way it is not an attractive option.