Assume that a central bank’s nominal seigniorage revenue equals
the change in the money supply, denoted ?M. Real seigniorage
revenue is ?M/P. Assume the inflation rate equals the growth rate
of the money supply, which is ?M/M
a. What is the rationale for these assumptions? Are they
realistic?
b.Write real seigniorage revenue in terms of the inflation rate
and the real money supply, M/P.
c. When inflation rises, what happens to the real money supply
and to seigniorage revenue? (Hint:...