Document Type

Report

Publication Date

9-1976

Number

41

Abstract

In a closed and stationary economy, real government revenue from the Issue of fiat money Is maximized when the rate of issue is such that the elasticity of the demand for real money balances with respect to the rate of inflation is unity. However, Friedman [1971] has shown that this result for a stationary economy does not carry over to a growing economy. In the case of a growing economy, the optimum rate of inflation for the maximization of government revenue from the issue of fiat money is lower than for a stationary economy.