Question

Deficit financing leads to inflation in general. but it can be checked if ___________________.

• A. government expenditure leads to increase in the aggregate supply in ratio of the aggregate demand
• B. only aggregate demand is increased
• C. all the expenditure is used for the national debt payment only
• D. fresh currencies are printed by the government to fulfill its deficit financing needs

Answer 1

The correct option is A government expenditure leads to increase in the aggregate supply in ratio of the aggregate demand

The basic reason for price rise in situations of deficit financing is that governments fail to equalise the total demand of the economy by the total supply.