See the slides and the FED reading: https://www.frbsf.org/economic-research/publications/economic-letter/2020/may/covid-19-fiscal-multiplier-lessons-from-great-recession/(Links to an external site.)

II. Suppose that the nominal federal budget deficit in the U.S. is about $1.5 trillion and outstanding debt is about $33 trillion.

What is the real deficit if the inflation rate is:

(i) 2%?

(ii) 3%?

(iii) 4%?

Hint: Real deficit = nominal deficit - (amount of debt x inflation). See the ppt FP slides in Module 6.

(iv) What is your group's view of moderate inflation? High inflation?