Which statement best describes the effect of printing money to finance government expenditures on the economy?
A) Printing money causes the value of money to rise.
B) Printing money imposes a tax on everyone who holds money.
C) Printing money increases the real interest rate.
D) Printing money lowers the velocity of money.

Question

Quizplus · Accepted Answer

Printing money to finance government expenditures leads to an increase in the money supply, which triggers inflation. When the government spends money by printing more currency, the value of the existing currency decreases, which is known as inflation. This decrease in the value of money translates to a higher price for goods and services, effectively imposing a tax on everyone who holds money.

Which Statement Best Describes the Effect of Printing Money to Finance