Question

(D) Accepting deposits
12. Which among the following is a cause of inflation?
(A) Deficit financing
(B) Rise in external loans
(C) Unfavourable balance of payment
(D) A hike in the CRR by the central bank of the country
rect statement?​

Answer 1

Answer:

the correct option is the A) Deficit financing

Answer 2

Answer:

The correct answer is option (A) Deficit financing.

Explanation:

• Deficit financing indicates developing funds to finance the deficiency which results from an excess of expense over income. The gap is encircled by borrowing from the people by many bonds or by publishing new money.
• Deficit financing involves investment adversely. When there is inflation in the economizing workers require more increased wages to survive. If their needs are accepted it raises the price of production which de-motivates the investors.
• Publishing new currency notes grow the flow of money in the economy. This shows to increase in inflationary pressures which guide to rise in prices of goods and services in the country.
• Deficit financing is intrinsically inflationary. Since deficit financing increases aggregate cost and, hence, raises aggregate demand, the risk of inflation looms big.

Therefore, deficit financing is a cause of inflation.