Yes, financing a budget deficit by borrowing leads to inflation and can reduce the real value of government debt. This is because the government is issuing more money to pay for its debt, which increases the money supply and causes prices to rise.
Inflation reduces the value of government debt because it erodes the purchasing power of the money used to repay the debt. The government must repay the debt with more money than was originally borrowed, due to the decrease in the value of money. This means that the real value of the debt is reduced and that the government will have to pay back more than it originally borrowed. As a result, financing a budget deficit by borrowing can lead to higher inflation, which in turn reduces the real value of government debt.
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