When a nation prints money (rather than taxing directly) to finance its government spending, it results in inflation, and purchasing power of the private sector falls. This is known as:
A) benchmarking.
B) indirect taxation.
C) seigniorage.
D) creeping inflation.

Question

Quizplus · Accepted Answer

Seigniorage refers to the profit made by a government by printing money, as the face value of the paper notes is greater than the cost of printing them. However, excessive printing of money leads to inflation, as the value of money decreases. This effectively acts as an indirect tax on the private sector, as the purchasing power of their money decreases. Benchmarking refers to the process of comparing performance to industry standards, while indirect taxation refers to taxes imposed on goods and services rather than directly on income or profits. Creeping inflation refers to a gradual increase in prices over time.

When a Nation Prints Money (Rather Than Taxing Directly) to Finance