Monetizing the debt has what effect on the economy?
A)Slow increase in AS with steady inflation
B)Rapid increase in AD with an increase in inflation
C)Rapid increase in AS with a drop in inflation
D)Decrease in AD with an increase in inflation

Question

Quizplus · Accepted Answer

Monetizing the debt involves the central bank buying government bonds with newly created money, which leads to an increase in the money supply and a decrease in interest rates. This boosts economic activity and leads to a rapid increase in aggregate demand (AD) as consumers and businesses have increased access to credit and spend more. However, this can also lead to inflationary pressures as the increase in money supply outpaces the growth in output. Therefore, the most likely effect of monetizing the debt is a rapid increase in AD with an increase in inflation.

Monetizing the Debt Has What Effect on the Economy