Governments promote long-run inflation when they depend on ________ to finance their expenditures.

Question

Quizplus · Accepted Answer

When governments depend on money creation to finance their expenditures, this increases the money supply and leads to inflation. This is because the increase in the supply of money makes each unit of currency less valuable, resulting in a rise in the general price level. Issuing bonds, taxation, and selling off assets do not necessarily increase the money supply and therefore do not directly promote inflation. While raising the national debt could potentially lead to inflation if it is financed through money creation, this is not always the case and therefore is not the best answer.

Governments Promote Long-Run Inflation When They Depend on ________ to Finance