Assume that real money balances do not change. Which of the following will occur if the central bank increases money growth?
A) Seignorage will decrease.
B) Seignorage will increase.
C) There will be no change in seignorage.
D) There will be an ambiguous effect on seignorage.
E) Seignorage will initially decrease followed by increases.

Question

Quizplus · Accepted Answer

Seignorage refers to the additional revenue that the government (or central bank) earns from printing money. When the central bank increases money growth, there will be more money in circulation, which means that the overall seignorage earned by the central bank will increase. This is because the central bank earns interest on the money it creates and lends out to commercial banks or the government. Therefore, an increase in money growth will lead to an increase in seignorage.

Assume That Real Money Balances Do Not Change