Which one of the following is likely to be the most inflationary in its effects?

Question

Accepted Answer

Borrowing from public and banks will lead to a decrease in the money supply in the market as in both the options money in hand is reduced for public and money to lend is reduced for banks.Creation of new money to finance a budget deficit will have more inflationary effect than repayment of debt, as it will lead to an increase in total money supply in the market (as new money is being created). Hence option (d) is the correct answer.During last fiscal year, option of monetization of deficit was explored but the idea was dropped due to likely inflationary pressure.Source: Vision IAS Economy Study Material