Author Question: First, explain what seignorage is. Second, write out and explain the expression that represents ... (Read 48 times)

Redwolflake15 · **on:** Jun 30, 2018

First, explain what seignorage is. Second, write out and explain the expression that represents seignorage. And finally, what policies can a central bank implement to increase seignorage?

What will be an ideal response?

Question 2

What are the primary causes of hyperinflations? Explain.

What will be an ideal response?

potomatos · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Seignorage is the revenue from money creation measured in real terms, seignorage equals H/P. This expression can be rearranged to yield: (H/H)(H/P). The first term is simply the rate of growth of nominal money and the second term is real money balances. To increase seignorage, the central bank can increase the rate of growth of H, assuming H/P does not change.

Answer to Question 2

A hyperinflation simply means a very high inflation. For one to occur, money growth must also be very high. Money growth is usually very high when the government is using debt monetization to finance a large and growing budget deficit.