Chapter 16, Problem 6P

To determine

Concept Introduction:

Seigniorage: It is an act of generating revenue from printing money by the central bank of the country. It is the profit earned by the government. There is always a difference between the face value of the printed money and the cost incurred in printing it. Such difference generates profit.

Investment Spending: All those spending’s which are done on physical capital which means that only expenses that increases an economy’s level of physical capital is known as investment spending.

Crowding Out: Fiscal and monetary expansion leads to an increase in the real GDP as well as the interest rate. High interest rates decreases the level of investment which means the increase in GDP is not complete; some amount is crowded out due to an increase in the interest rate.