Suppose the private sector wishes to hold a constant level of real high-powered money.This means that with an ongoing inflation of p percent,each year the government treasury can obtain goods from the private sector in exchange for ________ p times the existing high-powered money,a government revenue source called ________.

Question

Quizplus · Accepted Answer

Seignorage is the revenue obtained by the government by creating new money. In this context, with ongoing inflation, the government can create new money equivalent to a percentage (p) of the existing high-powered money to maintain its real value, thus obtaining goods or services from the private sector without reducing the money's purchasing power.

Suppose the Private Sector Wishes to Hold a Constant Level