Directly creating new money to fund government deficits (monetizing the deficit) is the most inflationary method as it rapidly increases the money supply without a commensurate increase in output.
Which one of the following will be most inflationary?
Asked in KPSC KAS Prelims 2024 · Topic: Money & Banking (Inflation: Types, Causes, Effects, and Monetary Policy Responses)
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Answer: D. Creation of new money to finance a budget de‐ ficit.
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