UPSC Prelims 2021— Question 100

Creating new money to finance a budget deficit is potentially the most inflationary option because it directly expands the money supply without an equivalent withdrawal of purchasing power elsewhere. Borrowing from the public mainly reallocates existing purchasing power, while borrowing from banks can have monetary effects but is not as directly expansionary as monetization. Repayment of public debt is generally contractionary rather than inflationary. The final answer-key position for Set C identifies option D as the correct option. Option A — Repayment of public debt — is not correct because it does not satisfy the specific condition tested in the question; it represents an alternative that is contradicted, incomplete, or less precise than the accepted answer. Option B — Borrowing from the public to finance a budget deficit — is not correct because it does not satisfy the specific condition tested in the question; it represents an alternative that is contradicted, incomplete, or less precise than the accepted answer. Option C — Borrowing from the banks to finance a budget deficit — is not correct because it does not satisfy the specific condition tested in the question; it represents an alternative that is contradicted, incomplete, or less precise than the accepted answer. Option D — Creation of new money to finance a budget deficit — is correct because it is the alternative that matches the constitutional, historical, geographical, scientific or economic principle established above. For PYQ interpretation, the distinction between the correct alternative and merely related facts is important. UPSC often places plausible distractors beside the precise statement that matches the underlying rule, chronology, definition or empirical relationship. The answer should therefore be read against the exact wording of the question rather than against a broadly related fact.