5. Using money creation to pay for government spending Consider Kobuk, a hypothetical country that produces only lobster rolls. In 2019, a lobster roll is priced at $7.00. Complete the first row of the table with the quantity of lobster rolls that can be bought with $500. Hint: In this problem, assume it is not possible to buy a fraction of a lobster roll, and always round down to the nearest whole lobster roll. For example, if your calculations result in 1.5 lobster rolls, the answer should be 1 lobster roll. Year 2019 2020 Price of a Lobster roll Lobster rolls Bought with $500 (Quantity) (Dollars) 1:0 7.00 Suppose the government of Kobuk cannot raise sufficient tax revenue to pay its debts. In order to meet its debt obligations, the government prints money. As a result, the money supply rises by 30% by 2020. Assuming monetary neutrality holds, complete the second row of the table with the new price of a lobster roll and the new quantity of lobster rolls that can be bought with $500 in 2020. The impact of the government's decision to raise revenue by printing money on the value of money is known as the
5. Using money creation to pay for government spending Consider Kobuk, a hypothetical country that produces only lobster rolls. In 2019, a lobster roll is priced at $7.00. Complete the first row of the table with the quantity of lobster rolls that can be bought with $500. Hint: In this problem, assume it is not possible to buy a fraction of a lobster roll, and always round down to the nearest whole lobster roll. For example, if your calculations result in 1.5 lobster rolls, the answer should be 1 lobster roll. Year 2019 2020 Price of a Lobster roll Lobster rolls Bought with $500 (Quantity) (Dollars) 1:0 7.00 Suppose the government of Kobuk cannot raise sufficient tax revenue to pay its debts. In order to meet its debt obligations, the government prints money. As a result, the money supply rises by 30% by 2020. Assuming monetary neutrality holds, complete the second row of the table with the new price of a lobster roll and the new quantity of lobster rolls that can be bought with $500 in 2020. The impact of the government's decision to raise revenue by printing money on the value of money is known as the
Chapter1: Making Economics Decisions
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Transcribed Image Text:5. Using money creation to pay for government spending
Consider Kobuk, a hypothetical country that produces only lobster rolls. In 2019, a lobster roll is priced at $7.00.
Complete the first row of the table with the quantity of lobster rolls that can be bought with $500.
Hint: In this problem, assume it is not possible to buy a fraction of a lobster roll, and always round down to the nearest whole lobster roll. For
example, if your calculations result in 1.5 lobster rolls, the answer should be 1 lobster roll.
Year
2019
2020
Price of a Lobster roll Lobster rolls Bought with $500
(Quantity)
(Dollars)
7.00
Suppose the government of Kobuk cannot raise sufficient tax revenue to pay its debts. In order to meet its debt obligations, the government prints
money. As a result, the money supply rises by 30% by 2020.
Assuming monetary neutrality holds, complete the second row of the table with the new price of a lobster roll and the new quantity of lobster rolls that
can be bought with $500 in 2020.
The impact of the government's decision to raise revenue by printing money on the value of money is known as the
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