Multiple choice

What is the effect of deficit financing on economy?

  1. Inflation

  2. Deflation

  3. Depression

  4. Recession
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Deficit financing increases the money supply in the economy without corresponding production, leading to inflation. When the government spends more than its revenue by borrowing or printing money, it increases aggregate demand and pushes up prices across the economy.

Keep practicing — related questions