Consider an Economy That Has the Following Monetary Data

question 46

Multiple Choice

Consider an economy that has the following monetary data:
Currency in circulation=$300
Bank reserves=$50
Monetary base=$350
Deposits=$700
Money supply=$1000
The monetary base and the money supply are expected to grow at a constant rate of 20% per year.Inflation and expected inflation are 20% per year.Suppose that bank reserves and currency pay no interest,all currency is held by the public,and bank deposits pay no interest.What is the cost to the public of the inflation tax?

• A)$60
• B)$140
• C)$190
• D)$200

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Definitions:

Exporting

The act of selling goods or services produced in one country to buyers in another country.

Market Entry

The strategy or methodologies used by a company to start selling its products or services in a new market or country.

Direct Investment

Involves placing capital directly into projects, property, or businesses rather than purchasing stock or bonds.

Licensing

The process of granting permission by one party to another to use a trademark, patent, or technology under agreed terms and conditions.