Final answer:
A large international debt may lead a government to print more money as an inflationary tactic to reduce the real value of the outstanding debt, enabling repayment at a negative real interest rate. This approach can lead to higher inflation, price controls, and economic instability.
Step-by-step explanation:
According to the text, a large international debt may cause a government to print more money. When a government accumulates significant debt, and the cost of servicing this debt increases due to rising interest rates, it is under pressure to reduce its budget deficits. This can be done through spending cuts and tax increases, which are politically challenging and can have a contractionary effect on the economy. However, as debt service costs rise and create uncertainty in financial markets, governments may resort to inflationary measures to lower the real value of the debt they owe. By letting inflation exceed the fixed interest rate at which they have borrowed, governments can repay their debt at a negative real interest rate, effectively reducing the debt burden without immediate cash outlays.
Historical examples include governments that faced with no money to pay workers and bills, opted to print money rather than raising taxes. This can lead to higher inflation rates, causing governments to enact price controls, which can result in shortages and black markets as seen in some economies.