When governments in developing countries run budget deficits, central banks in these countries typically:
A)buy the bonds issued by the government and increase the money supply in the process.
B)buy the bonds issued by the government and decrease the money supply in the process.
C)sell the bonds issued by the government and increase the money supply in the process.
D)sell the bonds issued by the government and decrease the money supply in the process.

Question

Quizplus · Accepted Answer

When governments in developing countries run budget deficits and issue bonds to finance these deficits, central banks often buy these bonds. This action increases the money supply because the central bank pays for these bonds by creating new money.

When Governments in Developing Countries Run Budget Deficits, Central Banks