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

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

Quizplus · Accepted Answer

Monetizing the debt refers to when the government prints new money to pay off their debts. This infusion of money into the economy leads to a rapid increase in aggregate demand (AD), as there is more money available for people to spend. However, if the economy is not able to produce and supply goods and services at the same rate as the increase in AD, then there will be an increase in inflation as prices rise due to the excess demand.

Monetizing the Debt Has What Effect on the Economy