The Treasury runs the greatest risk of inflation when expenditures are financed by borrowing from
A) foreign nations.
B) the Federal Reserve.
C) the banking system.
D) the non-bank public.

Question

Quizplus · Accepted Answer

When the Treasury borrows money from the Federal Reserve, it increases the money supply, which can lead to inflation. This is because the Federal Reserve can create new money to lend to the Treasury, which increases the amount of money in circulation without any corresponding increase in goods and services. This can lead to higher prices as individuals and businesses compete for a limited supply of goods and services.

The Treasury Runs the Greatest Risk of Inflation When Expenditures