Question: Hi, if you are using formulas, please explain the formula, Suppose that the velocity of the monetary base is 20, real GDP grows 3% per

Hi, if you are using formulas, please explain the formula,

Suppose that the velocity of the monetary base is 20, real GDP grows 3% per year and inflation is 2%.

(a) Calculate seignorage relative to GDP.

(b) Calculate seignorage relative to GDP if the real growth rate is instead 8% and velocity remains unchanged.

(c) Calculate seignorage relative to GDP if inflation is instead7% and velocity remains

unchanged.

(d) Would you expect velocity to be the same in cases (b) and (c) as in (a)? Consider both the short and the long run.

(e) Is the result in (c) an over- or underestimation of the increase in seignorage?

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