Printing money to finance government expenditures
A)causes the value of money to rise.
B)imposes a tax on everyone who holds money.
C)is the principal method by which the U.S.government finances its expenditures.
D)causes prices to fall.

Question

Quizplus · Accepted Answer

When a government prints money to finance its expenditures, it increases the supply of money in circulation. This, in turn, reduces the value of each individual unit of money (inflation) and imposes a hidden tax on everyone who holds money as their purchasing power decreases. Option A and D are incorrect as printing money generally causes the value of money to fall and prices to rise. Option C is incorrect because the government finances its expenditure using various means such as taxes, borrowing, and foreign aid, apart from printing money.

Printing Money to Finance Government Expenditures