The term seigniorage refers to
A)the difference between the actual budget deficit and the inflation adjusted deficit
B)the difference between money supply and the monetary base
C)the government's ability to raise tax revenue by creating money
D)the fact that a government that defaults on its debt will not face severe consequences
E)the substitution of another country's currency as a medium of exchange in order to stop hyperinflation

Question

Quizplus · Accepted Answer

Seigniorage refers to the profits obtained by the government when it creates money. This is because the cost of producing currency or coins is much lower than the face value of the currency. Therefore, the government can create money and use it to purchase goods and services or to pay off its debt. This ability to raise tax revenue by creating money is referred to as the seigniorage revenue.

The Term Seigniorage Refers to