Only when budget deficits are financed by money creation does the increased government spending lead to ________ in the ________.
A)a decrease;monetary base
B)an increase;monetary base
C)a decrease;money multiplier
D)an increase;money multiplier

Question

Quizplus · Accepted Answer

When budget deficits are financed by money creation, the central bank increases the money supply, which leads to an increase in the monetary base (currency plus bank reserves). As a result, the increased government spending leads to an increase in the money multiplier, which determines the overall money supply. Therefore, choice B- an increase in monetary base, is the correct answer.

Only When Budget Deficits Are Financed by Money Creation Does