Which of the following best describes the effect of printing money to finance government expenditures on the economy?
A)Printing money causes the value of money to rise.
B)Printing money imposes a tax on everyone who holds money.
C)Printing money increases the real interest rate.
D)Printing money lowers the velocity of money.

Question

Quizplus · Accepted Answer

Printing money to finance government expenditures will lead to an increase in the money supply in the economy, which will ultimately devalue the currency. This means that the prices of goods and services in the economy will rise (inflation), causing a hidden tax on everyone who holds money. Therefore, choice B best describes the effect of printing money on the economy.

Which of the Following Best Describes the Effect of Printing