This method of financing government spending is frequently called printing money because high-powered money (the monetary base)is created in the process.
A) Financing government spending with taxes.
B) Financing government spending through a Treasury sale of bonds that are then purchased by the Fed.
C) Financing government spending by selling bonds to the public, which pays for the bonds with currency.
D) Financing government spending by selling bonds to the public, which pays for the bonds with checks.

Question

Quizplus · Accepted Answer

Financing government spending through a Treasury sale of bonds that are then purchased by the Fed creates high-powered money because the Fed uses newly created money to purchase the bonds. This method of financing is often called "printing money." Financing government spending with taxes (A) does not create new money. Financing government spending by selling bonds to the public and receiving payments in currency (C) also does not create new money, as the money was already in circulation. Financing government spending by selling bonds to the public and receiving payments in checks (D) does involve money creation, but only to the extent that the checks are deposited into banks and used to create new bank deposits.

This Method of Financing Government Spending Is Frequently Called Printing