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UPSC PYQPrelims 2021

Civil Services Examination · Question 10

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

  1. Repayment of public debt
  2. Borrowing from the public to finance a budget deficit
  3. Borrowing from the banks to finance a budget deficit
  4. Creation of new money to finance a budget deficit
Show answer & explanation

Answer: (D) Creation of new money to finance a budget deficit

Explanation

Monetising the deficit (printing money) directly expands money supply and is the most inflationary option.