Assume you are central bank governor of a country which is experiencing inflation of 100% per month and you have two economic advisors. One advisor tells you that in order to increase seignorage you ought to raise the money growth rate. The other advisor tells you that in order to increase seignorage you ought to reduce the money growth rate.
1. Discuss the concept of seignorage, both in words and formally (e.g. algebraically).
2. Explain which of the two recommendations is correct? Why?