Seigniorage revenue arises from printing money to finance deficits.

• A. It lowers inflation
• B. It reduces seigniorage
• C. It creates revenue by printing money to finance deficits
• D. It increases debt

Answer: (C)

Seigniorage is the revenue the government earns when it finances its spending by creating money. When deficits are financed this way, the government gains a windfall equal to the value of the new money issued, minus the cost of producing it. That is exactly what the statement describes: revenue created by printing money to finance deficits.

This approach tends to raise inflation rather than lower it, because more money chasing the same amount of goods pushes prices up. It doesn’t reduce seigniorage; it is the source of seigniorage. And it doesn’t straightforwardly increase debt—financing with money creation substitutes for borrowing, at least in the short run, rather than adding to debt in the same way issuing bonds would.