Other things equal, the higher the fiscal deficit, the higher the required increase in base money.

Question

Quizplus · Accepted Answer

Fiscal deficit refers to the excess of government spending over its revenue. To finance this deficit, the government may borrow from the central bank or commercial banks. When the central bank lends money to the government, it creates new base money, which increases the monetary base. Therefore, the higher the fiscal deficit, the higher the required increase in base money to finance it.

Other Things Equal, the Higher the Fiscal Deficit, the Higher