Financing a deficit by borrowing from the RBI, which pays by creating new money, is most likely to cause

inflation, because money supply risesCorrect answerYour answerdeflationCorrect answerYour answera fall in government spendingCorrect answerYour answera revenue surplusCorrect answerYour answer

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CorrectNot quiteAnswer A

Correct answer: A

New money adds to demand without adding to output, so prices tend to rise.

Concept: Deficit financing and inflation
Typical timeTypical: 70 s
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The rule this testsWhat deficits do

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Financing a deficit by borrowing from the RBI, which pays by creating new money, is most likely to cause

Explanation