UPSC CSE Prelims
Question 77
Which one of the following is likely to be the most inflationary in its effects?
View correct answer and explanation
Correct answer: D
Correct Option: D (Creation of new money to finance a budget deficit)
Explanation: Deficit financing by creating new base money expands the monetary supply directly and can be especially inflationary when output cannot keep pace.
Option-wise Analysis:
A. Incorrect-Debt repayment redistributes funds and need not create equivalent new money.
B. Incorrect-Borrowing from public channels pre-existing savings, usually less inflationary than monetisation.
C. Incorrect-Bank borrowing can expand money/credit, but is less direct than printing new base money.
D. Correct-money creation to cover deficits has the greatest direct inflationary potential.