(For the blue line you can choose between fisher effect/velocity of money/classi
ID: 1095713 • Letter: #
Question
(For the blue line you can choose between fisher effect/velocity of money/classical dichotomy/inflation tax
Consider Tralfamadore, a hypothetical country that produces only burgers. In 2012, a burger is priced at $4.00. Complete the first row of the table with the quantity of burgers that can be bought with $300. Note: In this problem, assume it is not possible to buy a fraction of a burger, and always round down to the nearest whole burger. Year 2012 2013 Price of Burger (Dollars) 4.00 Burgers Bought with $300 (Quantity) Suppose the government of Tralfamadore cannot raise sufficient tax revenues to pay its debts. In order to meet its debt obligations, the government prints money. As a result, the money supply rises by 20% by 2013. Assuming money neutrality holds, complete the second row of the table with the new price of a burger and the new quantity of burgers that can be bought with $300 in 2013. The impact of the government?s decision to raise revenue by printing money on the value money is known as theExplanation / Answer
He buys 75 burgers in 2012 with $300.
As the money supply rises by 20%, the inflation also rises by 20%. Thus the new price of burgers is $4.8.
The number of burgers bought with $300 now are 62.5 as the new price is $4.8.
The impact of government's decision to raise revenue by printing money on the value of money is known as Inflation Tax.
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