In which case would you be most likely to expect inflation to occur?
A)The government runs a sustained government deficit by lowering taxes.
B)The government runs a sustained government deficit by increasing purchases.
C)The government runs a sustained primary deficit by increasing purchases.
D)The government funds its sustained deficit by increasing the money supply.

Question

Quizplus · Accepted Answer

When the government funds its deficit by increasing the money supply, there will be more money circulating in the economy than there are goods and services available. This excess demand will cause prices to rise, leading to inflation.

In Which Case Would You Be Most Likely to Expect