5. Using money creation to pay for government spending Consider Snackistan, a hypothetical country that produces only burgers. In 2017, a burger is priced at $2.00. Complete the first row of the table with the quantity of burgers that can be bought with $700. Hint: In this problem, assume it is not possible to buy a fraction of a burger, and always round down to the nearest whole burger. For example, if your calculations result in 1.5 burgers, the answer should be 1 burger. Price of a Burger Burgers Bought with $700 Year (Dollars) (Quantity) 2017 2.00 2018 Suppose the government of Snackistan 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 40% by 2018. Assuming monetary neutrality holds, complete the second row of the table with the new price of a burger and the new quantity of burgers that can be bought with $700 in 2018. 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 Snackistan, a hypothetical country that produces only burgers. In 2017, a burger is priced at $2.00.
Complete the first row of the table with the quantity of burgers that can be bought with $700.
Hint: In this problem, assume it is not possible to buy a fraction of a burger, and always round down to the nearest whole burger. For example, if your calculations result in 1.5 burgers, the answer should be 1 burger.
|
Year |
|
Burgers Bought with $700 |
|
|
(Dollars) |
(Quantity) |
|
2017 |
2.00 |
????? |
|
2018 |
????? |
????? |
Suppose the government of Snackistan 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 40% by 2018.
Assuming monetary neutrality holds, complete the second row of the table with the new price of a burger and the new quantity of burgers that can be bought with $700 in 2018.
The impact of the government's decision to raise revenue by printing money on the value of money is known as the ___velocity of money/ classical dichotomy/ fisher effect/ inflation tax__
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