Question

If real money balances are $2.0 trillion (2017 dollars), and the monetary expansion rate is 25%, what is the annual rate of seigniorage (in billions of 2017 dollars per year)? (Assume for simplicity that the government costlessly creates the entire money stock.)

Answer 1

Answer:

$500 billion

Explanation:

Data provided in the question:

Real money balances = $2.0 trillion = $2,000,000,000,000

Monetary expansion rate = 25%

now,

The annual rate of seigniorage

= Real money balances × Monetary expansion rate

= $2,000,000,000,000 × 0.25

or in billions

= $\frac{\textup{2,000,000,000,000}\times0.25}{\textup{1,000,000,000}}$

= $500 billion