Question

In an economy, deficit financing leads to an increase in the

• A. Money supply
• B. Hoarding
• C. Controlled spending
• D. Surplus fund

Answer 1

The correct option is A

Money supply

The total use of money in the market is the amount of money supplied by the government multiplied by the velocity of circulation of money. The government incurs extra expenditure by resorting to deficit financing, which in turn leads to an increase in the money supply.