Question

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

(a) Repayment of public debt

(b) Borrowing from the public to finance a budget deficit

(c) Borrowing from the banks to finance a budget deficit

(d) Creation of new money to finance a budget deficit

Answer 1

(d) Creation of new money to finance a budget deficit

Printing extra money will create a high level of inflation/hyperinflation, if there are not enough goods and services in the market for purchase.