SSC Economics Sample Paper NCERT Sample Paper-2

  • question_answer
    Which one of the following is likely to be the most inflationary, in its effect?

    A) Repayment of public debt

    B) Borrowing from the public to finance a budget deficit

    C) Borrowing from banks to finance a budget deficit

    D) Creating new money to finance a budget deficit

    Correct Answer: D

    Solution :

    If the government finances its deficit spending by printing new money, then there is no crowding out of private spending. That this spending will increase without reducing consumption or investment. This kind of financing is a more expansionary way but more inflationary.

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