A government with a large deficit will also produce high inflation in the economy if it:

Question

Quizplus · Accepted Answer

Seignorage is the ability of the government to increase the money supply by printing more currency. When a government with a large deficit chooses to finance the deficit through seignorage, it leads to an increase in the money supply, which in turn leads to inflation. This is because there is more money chasing after the same amount of goods and services, leading to higher prices.

A Government with a Large Deficit Will Also Produce High