Multiple choice

Deficit financing creates additional paper currency to fill up the gap between expenditure and revenue. This device aims at economic development. But if it fails, it generates

  1. deflation

  2. de-monetization

  3. devaluation

  4. inflation
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Deficit financing involves printing more money to cover government spending. If this supply of money outpaces the production of goods and services, it leads to inflation.

Keep practicing — related questions