Whether real seignorage revenue increases when the rate of money growth increases depends on whether
A)the rise in real money holdings outweighs the decline in inflation.
B)the rise in inflation outweighs the decline in real money holdings.
C)the rise in inflation ratio outweighs the decline in the real supply of currency.
D)the rise in the real supply of currency outweighs the decline in inflation.

Question

Quizplus · Accepted Answer

Seignorage revenue increases when the rate of money growth increases if the rise in inflation (which is a direct consequence of increased money supply) outweighs the decline in real money holdings. This is because seignorage is essentially the revenue generated from printing money, and its real value depends on the purchasing power of the money printed, which is eroded by inflation if it rises faster than the increase in money supply.

Whether Real Seignorage Revenue Increases When the Rate of Money