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Which one of the following is likely to be the most inflationary in its effects?
1) Repayment of public debt
2) Borrowing from the public to finance a budget deficit
3) Borrowing from the banks to finance a budget deficit
4) Creation of new money to finance a budget deficit.
The correct answer is Creation of new money to finance a budget deficit. .
CSE 2021
The government can ask the RBI to print new currencies to finance a budget deficit. But once this money will be spent by the government, it will raise inflation.