Concept Introduction:
Seigniorage: It is an act of generating revenue from printing money by the central bank of a country. It is the profit earned by the government. There is always a difference between the face value of the printed money and the cost incurred in printing it. Such difference generates the profit.
Money: It is the medium of exchange which has sorted out the problem of barter system. It is the most liquid asset in the form of coins, currencies and deposits.
Total Revenue: It is defined as the total amount of money generated by selling the goods and services. The formula to calculate total revenue is:
Here,
- P is the price of good.
- Q is the quantity of good.
- TR is the total revenue.
Explanation of Solution
Government can easily obtain revenue when someone else actually prints the money because the cost of printing money is less than the face value of the currency.
In the given case, government of Libya is generating revenue from getting its currency printed from D Firm. It is because cost of printing money is less in the country D Firm.
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