In order to meet a deficit in the budget government follows certain strategies, which of the following strategies would lead to an increase in the money supply in the economy?
Answer & explanation
Correct answer: option 4
Loan from IMF, Deficit financing (methods used by government to finance the budget deficit) and disinvestment would increase the supply of money in the economy.
Loan from IMF - would bring money INTO the economy.
Deficit financing - for example: printing of new currency would also INCREASE the money flow into the economy.
Disinvestment: withdrawal or reduction in the investment will also INJECT money in the economy.