# Using money creation to pay for government spending Consider Kobuk, a hypothetical country

Using money creation to pay for government spending Consider Kobuk, a hypothetical country that produces only lobster rolls. In 2020, a lobster roll is priced at\$7.00. Complete the first row of the table with the quantity of lobster rolls that can be bought with\$500. Hint: In this problem, assume it is not possible to buy a fraction of a lobster roll, and always round down to the nearest whole lobster roll. For example, if your calculations result in1.5lobster rolls, the answer should be 1 lobster roll. Suppose the government of Kobuk 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 by30%by 2021. Assuming monetary neutrality holds, complete the second row of the table with the new price of a lobster roll and the new quantity of lobster rolls that can be bought with\$500in 2021 . The impact of the governmentâ€™s decision to raise revenue by printing money on the value of money is known as the