Which statement best describes the effect of printing money to finance government expenditures on the Canadian economy?
A) It accounts for 10 percent of government revenue.
B) It accounts for less than 1 percent of government revenue.
C) Printing money imposes a tax on net borrowers.
D) Printing money causes the nominal interest rate to decrease.

Question

Quizplus · Accepted Answer

Printing money to finance government expenditures is known as monetary financing or monetization of the deficit. This practice reduces the value of the currency and increases inflation. However, the practice is rarely used by central banks in modern economies, and in Canada, it accounts for less than 1 percent of government revenue. Therefore, option B is the best choice. Option A is incorrect because printing money does not contribute 10 percent of government revenue, and option C is incorrect because printing money creates inflationary pressure, which is a tax on everyone rather than a tax on net borrowers. Option D is also incorrect because printing money leads to an increase in the nominal interest rate, not a decrease.

Which Statement Best Describes the Effect of Printing Money to Finance