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

Repayment of public debt

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Borrowing from the public to finance a budget deficit

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Borrowing from banks to finance budget defic

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Creating new money to finance a budget deficit

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Solution

The correct option is B Creating new money to finance a budget deficit
Deficit financing always brings inflationary pressure whatever be the means but 'creation' (printing) of new money has the highest inflationary impact.

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