Which one of the following is likely to be the most inflationary in its effects

Explanation

Borrowing from the public and banks will lead to a decrease in the money supply in the market because, in both options, the money in hand is reduced for the public, and the money available for lending is reduced for banks. Creation of new money to finance a budget deficit will have a more inflationary effect than repayment of debt, as it will lead to an increase in the total money supply in the market (since new money is being created). Hence, option (d) is the correct answer. During the last fiscal year, the option of monetization of the deficit was explored but the idea was dropped due to the likely inflationary pressure.