Reference no: EM131882169

Assignment

Seven years after the revolution, King Robert was killed in a hunting accident. A war broke out between the government of the Seven Kingdoms, under the new King Joffrcy Baratheon. and forces led by Stannis Baratheon, Robert's younger brother. Stannis claimed the throne, asserting that the hunting accident had not really been an accident, and that Joffrey was not really Robert's son. (I lis mother was the dowager Queen Cersei. Ty-win Lannister's daughter.)

The government of King Joffrey turned to Littlefinger to raise funds for the war effort. He decided to raise some of the funds by debasing the coinage. His first step was to restore the mint price to 12 stars per ounce of silver, keeping the mint equivalent at 15% stars. At this price, the public brought another 500,000 ounces of silver to the mint.

1. How many stags did the government mint with this silver?

2. If all the stags and dragons currently in circulation had remained in circulation, by what percentage would the money supply have increased, as a result of this minting activity?

3. a. If the money supply had increased by this percentage, what would have happened to the price of bread, in stars, according to the Quantity Theory?

b. What would the new price have been?

4. At this price, what would the owners of the Lannister-minted coins that were still in circulation probably have decided to do with them? Why?

5. a. If these coins were withdrawn from circulation, how much would the money supply have increased, on net, as a result of the minting activity?

b. 1. By what percentage would the price of bread have increased, according to the Quantity Theory?

2. What would the new price have been?

6. Given this price increase (if any), would it still have made sense for the owners of the remaining Lannister-minted coins to take the step you described in your answer to Question 4? Explain briefly.

7. Given that this is the case,

a. What do you think the new price of bread was?

b. 1. What do you think the value of the new money supply was? 2. What coins did this new money supply consist of?

8. What was the new value of the GDP deflator for the Seven Kingdoms?

9. a. How much seigniorage revenue did the government earn, in stars? (Note: Be sure to net out the 1-in-12 minting costs.)

b. How much bread was it able to buy with this revenue, assuming [I] it was able to spend it before the price of bread rose or [2] it spent the revenue after the increase in the bread price?

10. a. If a merchant thought the price of bread would rise to its new level immediately, would it have made sense for him to bring silver to the mint? Why, or why not?

b. Would it have made sense if he thought he could spend the new coins before the price increased?