Question

Consider an economy in which aggregate real money balances is always equal to 1,000,000 goods. What...

Consider an economy in which aggregate real money balances is always equal to 1,000,000 goods. What is the maximum amount of seigniorage that a government could generate in this economy in a single period?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Seigniorage in simple terms, can be understood as the rate of money growth multiplied by the real money balances.

Or in other terms,

Seigniorage =

It is like a tax on the money balance held.

--

Thus, the maximum amount of seigniorage in a single period will be the maximum amount by which money supply can be increased in the short run.

Thus, if the government is unable to print any more money, it will not be able to make any revenue.

--

Now, in the short run, if there is no output growth and only money growth, the entire money growth leads to inflation.

Thus, in the short run, if there is no real growth, the inflation rate on real money balances determines the Seigniorage revenue.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider the market for real money balances. Suppose the Chinese economy begins to desacelerate (i.e., it...
Consider the market for real money balances. Suppose the Chinese economy begins to desacelerate (i.e., it begins to enter a recessionary period) causing aggregate output to decrease. Assuming that the price level does not change, with the help of a graph describe the effect on the interest rate if the Central Bank of China decides to increase the money supply at the same time that aggregate output decreases. Assuming the price level decreases and the money supply does not change,...
Suppose the market for real money balances in the Oesterling-Mack economy can be described by the...
Suppose the market for real money balances in the Oesterling-Mack economy can be described by the following equation and value: (?/?)? = 0.5Y - 10,000r; (?/?)? = 800, and the nominal money supply is 1,600. a) Solve for the equation for the LM curve (call it LM1). b) Consider the situation where the market for real money balances is in equilibrium. Calculate the real interest rate if the real GDP is 2,500. (Consider this as point A) c) Consider the...
QUESTION 2 (2,000 pts) Suppose the market for real money balances in the Oesterling-Mack economy can...
QUESTION 2 (2,000 pts) Suppose the market for real money balances in the Oesterling-Mack economy can be described by the following equation and value: (M/P)^d = 0.5Y - 10,000r ;   (M/p) ^s = 800 ,and the nominal money supply is 1,600. a)     Solve for the equation for the LM curve (call it LM1). b)    Consider the situation where the market for real money balances is in equilibrium. Calculate the real interest rate if the real GDP is 2,500. (Consider this as point...
Consider an economy in which the money demand function takes the form: (M/P) d = L...
Consider an economy in which the money demand function takes the form: (M/P) d = L (i, Y) = Y/(5i) a. If output grows at rate g, at what rate will the demand for real balances grow (assuming constant nominal interest rates)? b. What is the velocity of money in this economy? c. If inflation and nominal interest rates are constant, at what rate, if any, will velocity grow? d. How will a permanent (once-and-for-all) increase in the level of...
1) If the stock market crashes, then aggregate demand increases, which the Fed could offset by...
1) If the stock market crashes, then aggregate demand increases, which the Fed could offset by increasing the money supply. aggregate demand increases, which the Fed could offset by decreasing the money supply. aggregate demand decreases, which the Fed could offset by increasing the money supply. aggregate demand decreases, which the Fed could offset by decreasing the money supply. 2) In order to avoid entering a recession, the government of Batavia spent $300 billion improving infrastructure around the country. Assuming...
Real versus nominal GDP Consider a simple economy that produces two goods: cupcakes and muffins. The...
Real versus nominal GDP Consider a simple economy that produces two goods: cupcakes and muffins. The following table shows the prices and quantities of the goods over a three-year period. Year Cupcakes Muffins Price Quantity Price Quantity (Dollars per cupcake) (Number of cupcakes) (Dollars per muffin) (Number of muffins) 2012 1 120 1 195 2013 2 130 4 195 2014 4 130 4 145 Use the information from the preceding table to fill in the following table. Year Nominal GDP...
Consider an economy has had growth in real GDP of 3.1% and growth in the money...
Consider an economy has had growth in real GDP of 3.1% and growth in the money supply of 4.9%. a) If velocity has been constant for this economy, what will be the rate of inflation? b) If instead the velocity had increased by 5.6%, what will be the rate of inflation? c) The quantity theory of money theorizes that the rate of inflation is determined by the growth of the money supply. What is the key assumption for the quantity...
Assuming output Y is determined exogenously, and demand for real money balances is given by (M/P)...
Assuming output Y is determined exogenously, and demand for real money balances is given by (M/P) d = kY , answer the following: (a) Suppose k changes from period to period. Using the quantity equation MV = P Y , show how inflation is related to money growth, output growth, and growth in k. (b) Holding the money supply M and output Y constant, does a fall in k lead to inflation, deflation, or no change in the price level?...
Consider a hypothetical economy in which households spend $0.50 of each additional dollar of their after-tax...
Consider a hypothetical economy in which households spend $0.50 of each additional dollar of their after-tax income. The expenditure multiplier for this economy is___. Suppose that this economy is experiencing a recession. The government would like to stimulate aggregate demand and is deciding whether it should increase its spending by $1 billion or reduce income tax by $1 billion. Assume other things remain constant, and the marginal propensity to consume remains at 0.5. Before any multiplier effect takes place, a...
Q - 1 Which of the following statements is correct about real GDP? a- Real GDP...
Q - 1 Which of the following statements is correct about real GDP? a- Real GDP is not affected by the amount of final goods and services that are newly produced. b- Real GDP is affected by the price levels used to calculate real GDP. c- Changes in real GDP is affected by the price levels used to calculate real GDP. d- Nominal GDP is not affected by the amount of final goods and services that are newly produced Q...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT