# Using Money Creation to Pay for Government SpendingConsider Tralfamadore, a hypothetical country that produces only burgers. In 2018, a burger is priced at $4.00.## Instructions- **Complete the first row of the table** with the quantity of burgers that can be bought with $300.- **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.### Table: Price and Quantity of Burgers| Year | Price of a Burger (Dollars) | Burgers Bought with $300 (Quantity) ||------|-----------------------------|-------------------------------------|| 2018 | 4.00 | 75 || 2019 | | |- Suppose the government of Tralfamadore cannot raise sufficient tax revenue to pay its debts. To meet its debt obligations, the government prints money. As a result, the money supply rises by 20% by 2019.- **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 $300 in 2019.The impact of the government’s decision to raise revenue by printing money on the value of money is known as ________.### ExplanationThis exercise demonstrates the concept of monetary inflation, where an increase in the money supply can lead to a change in prices and purchasing power. The blank spaces in the table represent the calculations needed to determine how inflation affects the price of goods and services, in this case, burgers.

Government expenditure includes all government consumption, investment, and transfer…

5. Using money creation to pay for government spending Consider Tralfamadore, a hypothetical country that produces only burgers. In 2018, a burger is priced at $4.00. Complete the first row of the table with the quantity of burgers that can be bought with $300. 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 2018 2019 Price of a Burger (Dollars) 4.00 Burgers Bought with $300 (Quantity) 175 Suppose the government of Tralfamadore 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 20% by 2019. 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 $300 in 2019. 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 Tralfamadore, a hypothetical country that produces only burgers. In 2018, a burger is priced at $4.00. Complete the first row of the table with the quantity of burgers that can be bought with $300. 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 2018 2019 Price of a Burger (Dollars) 4.00 Burgers Bought with $300 (Quantity) 175 Suppose the government of Tralfamadore 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 20% by 2019. 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 $300 in 2019. The impact of the government's decision to raise revenue by printing money on the value of money is known as the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Using money creation to pay for government spending
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Question 3