Inflationary effects of fiscal policy

Creating new money (monetary expansion without corresponding output growth) is the most directly inflationary method. When government creates money to finance deficits, it increases money supply without increasing productive capacity, causing prices to rise. Option (a) is deflationary (removes money from economy). Option (b) transfers money from public to government—no net money creation, just circulation. Option (c) increases money supply via bank credit creation, which is inflationary but less direct than option (d). Option (d) represents pure monetary expansion by the central bank, which is the most straightforward inflationary tool. > Remember: Printing money (option d) directly increases money supply = maximum inflation pressure; borrowing merely redistributes existing money.