ECON 4721, Money & Banking

Reference: Modeling Monetary Economics (2016, Fourth Edition, Cambridge University Press) by Bruce Champ, Scott Freeman and Joseph Haslag

Suppose a government faces the following constraints on its ability to raise revenue:

In each period, the most it can raise through all taxes, including seigniorage, is T=946 goods.

The maximum real government debt that the fixed population can willingly hold, given the limitations of their endowments, is B=968 goods. Government debt pays a real rate of return of x=1.16.In period 1, government expenditures are equal to G=1,144 goods. Suppose no debt was issued in the previous period. The current leaders detest government expenditures but know they will not be in power next period. To severely limit the next government's options, the current leaders choose to cut taxes and seignorage revenues to 0. They instead choose to finance the entire amount of government expenditures through issuing debt. What is the maximum amount the next government will be able to expend? Round your answer to the closest integer.