9 . Using money creation to pay for government spending Consider Snackistan, a h

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9 . Using money creation to pay for government spending Consider Snackistan, a hypothetical country that produces only burgers. In 2014, a burger is priced at $2.00.

Keep the Highest: /2 Attempts 9. Using money creation to pay for government spending Consider Snackistan, a hypothetical country that produces only burgers. In 2014, a burger is priced at $2.00 Complete the first row of the table with the quantity of burgers that can be bought with $700. 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. Price of a Burger Burgers Bought with $700 (Quantity) Year(Dollars) 2014 2015 2.00 Suppose the government of Snackistan cannot raise sufficient tax revenue to pay its debts. In order to meet its debt obligations, the government prints money. As a result, the money supply rises by 40% by 2015. Assuming monetary 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 $700 in 2015 The impact of the government's decision to raise revenue by printing money on the value of money is known as the Grade It Now Save & Continue Continue without saving

Explanation / Answer

Number of burgers purchased in 2014 =700/2 =350.

To keep the neutrality of money.This implies money supply must be constant therefore, price must also increase by same amount 0.4*2+2 =P' .P' = 2.8. Quantity in 2015 = 700/2.8 =250.

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