Suppose there are 100 young rich people born in every period. Government debt and capital both pay real net rates of return equal to 25 percent. The fiat money stock is fixed. Each young rich person wishes to save 50 goods in each period. In period 0, the government issues a total amount of real government debt equal to 2,000 goods. The government attempts to roll over this initial debt in subsequent periods.
a. What are the real holdings of capital and bonds of each young rich person in period 0 and in period 1?
b. In what period does it become impossible for the government to continue to roll over its debt?
c. Now suppose the number of young rich people born in each period grows at the net rate of 10 percent. There are 100 young rich people born in period 0. Recalculate your answer to part b. Explain the difference in your answer.