The central bank is said to monetize the deficit when it
A)prints Federal Reserve notes to satisfy the increased demand for money.
B)sells government bonds from its own portfolio of government securities.
C)requires member banks to buy the bonds to finance the deficit.
D)purchases the bonds that the government issues.

Question

Quizplus · Accepted Answer

Monetizing the deficit refers to the process of the central bank purchasing government bonds issued to finance the deficit. This increases the money supply in the economy and can lead to inflation. Printing Federal Reserve notes, selling government bonds from its own portfolio, and requiring member banks to buy the bonds do not directly involve the central bank purchasing the bonds issued to finance the deficit.

The Central Bank Is Said to Monetize the Deficit When