This topic contains a solution. Click here to go to the answer

Author Question: Explain how the government gains revenue during inflation. What will be an ideal ... (Read 74 times)

ss2343

  • Hero Member
  • *****
  • Posts: 548
Explain how the government gains revenue during inflation.
 
  What will be an ideal response?

Question 2

Suppose that the free market exchange rate for the dollar is 115 yen, but the U.S. and Japanese governments want it to be 120 yen/dollar. What can the governments do? Illustrate your answer with a graph.
 
  What will be an ideal response?



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

lindahyatt42

  • Sr. Member
  • ****
  • Posts: 322
Answer to Question 1

The government issues securities and buys goods and services with the funds it raises. When the securities are bought by the Fed, money is created and the result is inflation. The government owns the Fed, so when the government pays interest to the Fed, the Fed returns the interest to the government and there is no overall cost to the government from issuing the securities. As a result, the government gets the revenue from selling the securities.
Furthermore, as the incomes of households and firms increase during inflation, they move into a higher marginal tax brackets and consequently pay higher taxes. The higher taxes are another source of government revenue from inflation.

Answer to Question 2

As is shown in the graph, the initial demand and supply for the dollar intersect at an exchange rate of 115 yen/dollar. In order to raise the price of the dollar, the governments need to increase the demand for the dollar (shown in the graph as a shift in the demand curve). They would do this by selling yen for dollars until the exchange rate rises to the desired level of 120 yen/dollar.




ss2343

  • Member
  • Posts: 548
Reply 2 on: Jun 29, 2018
Wow, this really help


blakcmamba

  • Member
  • Posts: 335
Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

 

Did you know?

The term pharmacology is derived from the Greek words pharmakon("claim, medicine, poison, or remedy") and logos ("study").

Did you know?

More than one-third of adult Americans are obese. Diseases that kill the largest number of people annually, such as heart disease, cancer, diabetes, stroke, and hypertension, can be attributed to diet.

Did you know?

Never take aspirin without food because it is likely to irritate your stomach. Never give aspirin to children under age 12. Overdoses of aspirin have the potential to cause deafness.

Did you know?

Since 1988, the CDC has reported a 99% reduction in bacterial meningitis caused by Haemophilus influenzae, due to the introduction of the vaccine against it.

Did you know?

Of the estimated 2 million heroin users in the United States, 600,000–800,000 are considered hardcore addicts. Heroin addiction is considered to be one of the hardest addictions to recover from.

For a complete list of videos, visit our video library