Monetization of the deficit (or debt) means that
A)the government uses monetary policy to control the economy rather than fiscal policy.
B)inflation accounting corrects for price increases.
C)the Fed buys newly issued debt and increases the money supply.
D)the amount of money in circulation is equal to the size of the debt.

Question

Quizplus · Accepted Answer

Monetization of the deficit refers to the process of the central bank buying government debt (bonds) by issuing new money. This increases the money supply in the economy, which can lead to inflation. Therefore, the correct answer is C - the Fed buys newly issued debt and increases the money supply. Options A, B, and D are incorrect as they do not refer to the process of monetization of the deficit.

Monetization of the Deficit (Or Debt) Means That