Which of the following is a feature of the 'Modern Monetary Theory' (MMT) perspective?
A. Governments are always financially constrained like households
B. Monetary financing is always inflationary regardless of capacity utilisation
C. Only balanced budgets are sustainable
D. A sovereign currency issuer faces no purely financial constraint on its spending and the main limit is inflation
Answer: Option D
Solution (By JKSSB Mock Tests)
Modern Monetary Theory argues that a government that issues its own fiat currency cannot be forced into involuntary default and that the relevant constraint on spending is the availability of real resources and the risk of inflation.
Explanation:
Crowding out is more pronounced when the economy is close to full employment, as higher government borrowing raises interest rates and reduces private investment.
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