Q: (IAS/2021)
question_subject:
Economics
question_exam:
IAS
stats:
0,306,31,10,10,11,306
keywords:
{'budget deficit': [0, 0, 0, 2], 'public debt': [0, 0, 0, 6], 'new money': [0, 0, 0, 2], 'effects': [0, 0, 3, 3], 'banks': [5, 6, 5, 25], 'repayment': [0, 0, 0, 5]}
Creation of new money to finance a budget deficit is likely to be the most inflationary in its effects. This is because an increase in the money supply without a corresponding increase in goods and services leads to an increase in demand for goods and services, which, in turn, leads to an increase in prices (inflation).