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:

Independent Authority

An organization or body that operates autonomously from government control, often established to regulate certain activities or uphold standards.

Political Base

The group of voters or supporters that are reliably supportive of a political party or candidate.

Cabinet

A body of high-ranking officials, typically consisting of the top leaders of the executive branch in a government, often headed by the President or Prime Minister, responsible for advising and administering government policies and decisions.

White House Staff

Employees of the Executive Office of the President of the United States, including senior advisors, assistants, and other support roles directly serving the President.