Assume that the real interest rate is 4%,the expected rate of inflation is 8%,and the nominal interest rate is 12%.The monetary base equals $50 billion.The real seignorage revenue collected by the government would equal

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Quizplus · Accepted Answer

Real seignorage revenue is calculated as the real interest rate multiplied by the monetary base. Here, 4% of $50 billion equals $2 billion. However, the expected inflation rate also affects the real value of money, so the real seignorage revenue is $4 billion.

Assume That the Real Interest Rate Is 4%,the Expected Rate