If the government deficit is not financed by increased bond holdings by the public:

If the government deficit is not financed by increased bond
holdings by the​ public:

A.

the monetary base and the money supply decrease.

B.

the monetary base and the money supply increase.

C.

the monetary base​ falls, but due to excess​ reserves, the money
supply rises.

D.

there is no effect on the monetary base or the money supply.

Answer

B.

the monetary base and the money supply increase.

as the central bank will infuse fresh liquidity through
priniting new currency notes to buy these bonds that means increase
in monetary base and money supply

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