Suppose the economy starts with zero outstanding government bonds. Let government expenditures be goods per young person each period. Neither taxes nor seigniorage are used in periods 1 and 2. So the entire amount of government expenditures is financed through issuing debt.
a. Let . Write down the government budget constraint, in peryoung person terms, in periods 2 and 3, solving the outstanding quantity of government bonds in periods 1 and 2.
b. What would taxes per young person have to be in period 3 if only taxes are used to pay for government expenditures and for interest on bonds?
c. What would seigniorage have to be, per young person, if only seigniorage were used to pay for government expenditures and for interest on government bonds?