Inflation: Seigniorage Flashcards
Chapter 6
What are the three ways a government can finance its spending?
Taxes (e.g. income or corporate tax)
Borrowing (e.g. selling government bonds)
Creating money (through the central bank — seigniorage)
What is seigniorage?
Seigniorage is the revenue a government earns by creating money.
Where does the term “seigniorage” come from historically?
From the French word “seigneur” (lord) — in the Middle Ages, the feudal lord had the exclusive right to mint coins.
Why is seigniorage often called “printing money”?
Because it refers to money creation, though today it’s often just electronic entries, not literal printing.
How does creating money cause inflation?
It increases the money supply, which increases demand for goods and services, pushing prices up.
Why is inflation considered a tax on holding money?
Because it reduces the purchasing power of money — it’s like a hidden tax without a tax bill.
Who pays the inflation tax?
Money holders — especially the public, as their money loses value when prices rise.
How does inflation reduce the real value of money?
As prices rise, the same amount of money buys fewer goods and services.
What share of U.S. government revenue typically comes from seigniorage?
Less than 3 percent
How does reliance on seigniorage differ between countries like the U.S. and Greece?
In the U.S., it’s minor. In Greece or countries with hyperinflation, it’s a major source of revenue.
