Which one of the following is likely to be the most inflationary in its effects?
Show answer
Answer: D. Printing new money to fund a deficit adds fresh money to the economy without reducing anyone's spending. This raises total demand the most, so it is the most inflationary. Borrowing from the public or banks only shifts existing money.
Watch for: Bank borrowing looks inflationary, but only new money creation (monetisation) adds fresh money.
Why the other options are wrong
- A. Wrong because repaying debt reduces government spending power and is not inflationary.
- B. Wrong because borrowing from the public just moves existing money to the government.
- C. Wrong because bank borrowing uses existing deposits and is less inflationary than new money.
Source to check: NCERT Class 12, Introductory Macroeconomics, Chapter 3 Money and Banking and Chapter 5 Government Budget
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.