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

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Submitted by examrobotsa on

Q: 59 (IAS/2013)
Which one of the following is likely to be the most inflationary in its effect?

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,365,73,34,16,23,365

keywords: 

{'budget deficit': [0, 0, 0, 2], 'public debt': [0, 0, 0, 6], 'new money': [0, 0, 0, 2], 'repayment': [0, 0, 0, 5], 'banks': [5, 6, 5, 25], 'effect': [4, 0, 2, 7]}

Creating new money to finance a budget deficit is likely to be the most inflationary in its effect. When new money is created to finance a budget deficit, it increases the money supply in the economy without a corresponding increase in the production of goods and services. This excess money in circulation can lead to an increase in aggregate demand, which may result in higher prices and inflationary pressure.