Cash economy with no banks

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Consider the following (hypothetical) cash economy with no banks. The money supply consists entirely of $1000 in currency. Output is currently at potential. The government is currently faced with a $100 budget deficit and chooses not to raise taxes, but instead prints $100 more currency with which to balance its budget. The long run result is likely to be

a) an interest rate of 10%

b) an inflation rate of 10%

c) a 10% increase in the velocity of money

d) a 10% growth rate of real GDP

e) a 10% increase in the national debt

Reference no: EM132473069

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