Real money demand in an all currency economy with fixed real output and real interest rate and constant money growth and inflation rates is L = 0.20Y-560i, where Y is real income and i is the nominal interest rate. In equilibrium, real money demand, L, equals real money supply, M/P. Suppose that Y is 600 and the real interest rate, r, is 0.08. a. What inflation rate maximizes seignorage? 0.07 (Round to two decimal places.) [Hint: Use calculus to maximize seignorage, or generate a table to calculate seignorage revenue for every .02 rates of inflation between 0.00 and 0.30.] What is the maximum amount of seignorage revenue? 2.52 (Round to two decimal places.) b. Repeat Part (a) for the case in which Y = 800 and r = 0.10. What inflation rate maximizes seignorage? ☐ (Round to two decimal places.) What is the maximum amount of seignorage revenue? ☐ (Round to two decimal places.)
Real money demand in an all currency economy with fixed real output and real interest rate and constant money growth and inflation rates is L = 0.20Y-560i, where Y is real income and i is the nominal interest rate. In equilibrium, real money demand, L, equals real money supply, M/P. Suppose that Y is 600 and the real interest rate, r, is 0.08. a. What inflation rate maximizes seignorage? 0.07 (Round to two decimal places.) [Hint: Use calculus to maximize seignorage, or generate a table to calculate seignorage revenue for every .02 rates of inflation between 0.00 and 0.30.] What is the maximum amount of seignorage revenue? 2.52 (Round to two decimal places.) b. Repeat Part (a) for the case in which Y = 800 and r = 0.10. What inflation rate maximizes seignorage? ☐ (Round to two decimal places.) What is the maximum amount of seignorage revenue? ☐ (Round to two decimal places.)
Chapter13: Inflation
Section: Chapter Questions
Problem 12SQ
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![Real money demand in an all currency economy with fixed real output and real interest rate and constant money
growth and inflation rates is L = 0.20Y-560i, where Y is real income and i is the nominal interest rate. In equilibrium,
real money demand, L, equals real money supply, M/P. Suppose that Y is 600 and the real interest rate, r, is 0.08.
a. What inflation rate maximizes seignorage? 0.07 (Round to two decimal places.)
[Hint: Use calculus to maximize seignorage, or generate a table to calculate seignorage revenue for every .02 rates of
inflation between 0.00 and 0.30.]
What is the maximum amount of seignorage revenue? 2.52 (Round to two decimal places.)
b. Repeat Part (a) for the case in which Y = 800 and r = 0.10.
What inflation rate maximizes seignorage? ☐ (Round to two decimal places.)
What is the maximum amount of seignorage revenue? ☐ (Round to two decimal places.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff30cb4aa-96a0-4216-8ceb-25b7fe52cd2d%2F8c3fb92a-9850-4f6e-9645-a1d7acf3a9f6%2Ffhzpwyl_processed.png&w=3840&q=75)
Transcribed Image Text:Real money demand in an all currency economy with fixed real output and real interest rate and constant money
growth and inflation rates is L = 0.20Y-560i, where Y is real income and i is the nominal interest rate. In equilibrium,
real money demand, L, equals real money supply, M/P. Suppose that Y is 600 and the real interest rate, r, is 0.08.
a. What inflation rate maximizes seignorage? 0.07 (Round to two decimal places.)
[Hint: Use calculus to maximize seignorage, or generate a table to calculate seignorage revenue for every .02 rates of
inflation between 0.00 and 0.30.]
What is the maximum amount of seignorage revenue? 2.52 (Round to two decimal places.)
b. Repeat Part (a) for the case in which Y = 800 and r = 0.10.
What inflation rate maximizes seignorage? ☐ (Round to two decimal places.)
What is the maximum amount of seignorage revenue? ☐ (Round to two decimal places.)
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