Question

Consider Katmai, a hypothetical couritry that produces only crab cakes. In 2021 , a crab cake is priced at $8. 0. Complete the first row of the table with the quantity of crab cakes that can be bought with $900. Hint: In this problem, assume it is not possible to buy a fraction of a crab cake, and always round down to the nearest whole crab cake. For excample, If your calcutations result in 1. 5 crab cakes, the answer should be 1 crab cake. Suppose the government of Katmal 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 30% by 2022. Assuming moctetary neutrality holds, complete the second row of the table with the new prich of a crab cake and the new quantity of crab cakes that can be bought with $900 in 2022. The impact of the government's decision to raise revenue by printing money on the walue of money is known as the

Answer 1

In 2021, $900 can buy 112 crab cakes. In 2022, with a 30% increase in the money supply, $900 can buy 86 crab cakes. The impact of printing money on the value of money is known as inflation.

Step-by-step explanation:

In 2021, with a crab cake priced at $8, we need to calculate the quantity of crab cakes that can be bought with $900. To do this, we divide $900 by $8:

Quantity = $900 / $8 = 112.5

Since we cannot buy a fraction of a crab cake, we round down to the nearest whole crab cake:

Quantity = 112

In 2022, the money supply is increased by 30%. This would result in an increase in the price of the crab cake. To find the new price, we multiply the original price by 1.3:

New Price = $8 * 1.3 = $10.40

To calculate the quantity of crab cakes that can be bought with $900, we divide $900 by the new price:

Quantity = $900 / $10.40 = 86.54

Again, we round down to the nearest whole crab cake:

Quantity = 86

The impact of the government's decision to raise revenue by printing money on the value of money is known as inflation.