Multiple choice

What is the direct effect of deficit financing?

  1. It leads to extra money supply which in turn pushes up prices.

  2. It leads to extra money supply which in turn makes market more and more competitive.

  3. The price situation comes under complete control.

  4. Demand and supply both increase.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Deficit financing increases money supply without matching goods production, leading to inflation (rising prices). More money chases the same amount of goods. Options B, C, and D are incorrect - deficit financing doesn't make markets more competitive, control prices, or necessarily increase supply.

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