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UPSC 2013: Which one of the following is likely to be the most inflationary in its effect?
(a)Repayment of public debt
(b)Borrowing from the public to finance a budget deficit
(c)Borrowing from banks to finance a budget deficit
(d)Creating new money to finance a budget deficit
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Not attemptedCorrect Answer: (d) Creating new money to finance a budget deficit
Financing a budget deficit by creating new money (monetisation) directly increases the money supply without a corresponding rise in output, making it the most inflationary method. Repaying debt or borrowing from the public/banks either leaves money supply unchanged or even contracts private liquidity in the short run, so they are less inflationary. Hence option (d) is the most inflationary. ([compass.rauias.com](https://compass.rauias.com/upsc-prelims/economy-pyq/?utm_source=openai))
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Frequently Asked Questions
What is the correct answer to this UPSC 2013 Indian Economy question?▼
The correct answer is option (d): Creating new money to finance a budget deficit. Watch the detailed video explanation in our Sherlocking Prelims course on UnlockIAS.
Which year was this Fiscal Policy & Budget question asked in UPSC Prelims?▼
This question was asked in UPSC CSE Prelims 2013, GS Paper 1, as Question 84. It falls under Indian Economy > Fiscal Policy & Budget.
What is the difficulty level of this UPSC question?▼
This question is rated "moderate". It requires sound conceptual understanding of the topic.
How many UPSC Prelims questions have been asked from Fiscal Policy & Budget?▼
UPSC has asked 44 questions from Fiscal Policy & Budget (under Indian Economy) across multiple years. Visit the topic page to see the full list and year-wise trends.