2013 GS Paper I, all questions
UPSC Prelims 2013 · GS Paper I
Question 84: Economy and Social Development
Which one of the following is likely to be the most inflationary in its effect?
aRepayment of public debt
bBorrowing from the public to finance a budget deficit
cBorrowing from banks to finance a budget deficit
dCreating new money to finance a budget deficit
AnswerUPSC’s answer is (d).
Creating new money to finance a budget deficit raises the money supply directly, and by a multiple through the banking system, without taking away anyone's existing purchasing power, so it is the most inflationary. Borrowing from the public only transfers existing purchasing power to the government. Borrowing from banks adds some to money supply but less. Repayment of public debt is not a way of financing a deficit.
Why each option is right or wrong
- (a) Wrong. Repayment of public debt is not a deficit-financing method.
- (b) Wrong. Borrowing from the public transfers existing purchasing power.
- (c) Wrong. Borrowing from banks is less inflationary than printing money.
- (d) Correct. New money adds directly to the money supply.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2013, General Studies Paper I, Series A. The paper on upsc.gov.in.