Suppose you are central bank governor of a country which is experiencing inflation of 100% per month. You have two economic advisors. One advisor tells you that in order to increase seignorage you ought to raise the money growth rate. The other advisor tells you that in order to increase seignorage you ought to reduce the money growth rate.

(a) Explain t lie concept of seignorage, both in words and formally (e.g. alge-braically).

(b) Which of the two recommendations is correct? Why? (Hint: look up the concept of the "Latter curve" and use it to answer this question.)

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a When a central government prints currency it gives a face value to the currency however the p... View the full answer