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

Correct Option: Creating new money to finance a budget deficit

Creating new money to finance a budget deficit (monetized deficit / deficit financing) directly increases the monetary base and overall money supply in the economy without a corresponding immediate increase in goods and services. This excess liquidity leads to strong demand-pull inflationary pressures compared to borrowing from the public or banks, which merely reallocates existing liquidity.