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

Question

Quizplus · Accepted Answer

Seigniorage refers to the government's ability to create money in order to finance its spending. When a government with a large deficit finances its spending through seigniorage, it increases the money supply, which can lead to inflation. Therefore, option C is the correct choice. A and B would not necessarily lead to high inflation. Imposing a debt ceiling may help to reduce deficit spending but it does not directly address the issue of inflation.

A Government with a Large Deficit Will Also Produce High