RAS question
The term 'Helicopter Money' refers to:
Correct answer: (C) Central bank directly financing government spending by printing money.
Helicopter money refers to government spending or transfers financed directly through newly created central bank money.
Explanation
Helicopter money is a Milton Friedman thought experiment, not a literal cash-drop policy. For RAS, it means the central bank creates money to finance government spending directly. The IMF paper describes helicopter money as a monetary injection where nothing is taken from the economy in exchange for cash, akin to fiscal transfers financed with freshly created money. That distinction matters: ordinary central bank asset purchases swap one financial asset for another, while helicopter money is meant to put newly created money into spending without a matching asset sale. The IMF paper also cautions that proposals for permanent monetary finance cannot be treated as costless, and that unsustainable fiscal spending can become inflationary whether first financed by money or by bonds.
Why the other options are wrong
- (A) Foreign aid during emergencies is an external resource transfer, whereas helicopter money is about domestic money creation financing fiscal spending or transfers.
- (B) The helicopter image is a metaphor from Friedman's thought experiment; the policy idea is not the physical dropping of currency from aircraft.
- (D) Tax cuts during a recession are a fiscal measure that reduces tax liability, while helicopter money specifically involves newly created central bank money financing spending or transfers.
Concept
This tests monetary policy, fiscal-monetary coordination and inflation risk. It recurs in RAS because crisis responses such as COVID-era stimulus often blur the line between central bank liquidity support and direct monetary financing.