When Deciding Whether or Not to Monetize a Deficit, a Central

Multiple Choice

When deciding whether or not to monetize a deficit, a central bank faces a dilemma, since if it decides

A) not to finance the deficit, higher interest rates may lead to the crowding out of private spending
B) not to finance the deficit, the domestic currency may depreciate and balance of payments problems may result
C) to finance the deficit, excessive monetary growth may lead to inflation
D) to finance the deficit, interest rates may increase too much
E) both A) and C)