WAEC - Economics (1998 - No. 24)
If a government which owned a company N10,000 in 1966 paid the debt fully in 1985 when the value of money has depreciated by 20 Percent, such a government had
lost
been placed at par with the company
gained
stabilizing the value of money
increased the value of money
Explanation
Original debt: N10,000 (1966 value)., Value depreciation: 20% means the effective value of money is now 80% of its original value.
Effective Value=N10,000 ×( 1 − 0.20) = N10,000 × 0.80 = N8,000
By paying N10,000 in 1985, the government effectively paid more than the adjusted value of the debt (N8,000). Therefore, in real terms, the government: gained.
Comments (0)
