Question

The government of Lilliput relies on substantial seigniorage to finance its spending, while the government of Blefuscu does not rely on seigniorage at all. Otherwise, the two nations are similar.

a. Lilliput has a ___ rate of money growth. (Higher/Lower)

Answer 1

Lilliput has a higher rate of money growth compared to Blefuscu due to its reliance on seigniorage to finance its spending.

Step-by-step explanation:

Lilliput has a higher rate of money growth compared to Blefuscu.

Seigniorage is the profit that the government makes by issuing currency. It is essentially the difference between the face value of money and the cost of producing it. When a government relies on seigniorage to finance its spending, it means that it is creating and issuing more money to the economy, which leads to an increase in the money supply.

In the case of Lilliput, since it relies on substantial seigniorage to finance its spending, it indicates that the government is increasing the money supply at a higher rate. This results in a higher rate of money growth compared to Blefuscu, where the government does not rely on seigniorage.