Which of the following represents debt monetization?
A)an increase in the budget deficit that is financed by money creation
B)an increase in the budget deficit that is financed by foreigner investors' purchases of domestic bonds
C)an increase in the budget deficit that coincides with a central bank sale of bonds
D)an open market purchase of bonds that results in inflation
E) none of the above

Question

Quizplus · Accepted Answer

Debt monetization refers to financing the government's budget deficit by the central bank through an increase in money supply. It involves printing new money and using it to buy government bonds, which results in inflation. Therefore, choice A is the correct option as it represents debt monetization. The other choices are not debt monetization.

Which of the Following Represents Debt Monetization