Question
Imagine a government that exists for two periods. In both periods the government receives tax revenue of $50. The government begins time Period 1 with
Imagine a government that exists for two periods. In both periods the government receives tax revenue of $50. The government begins time Period 1 with an asset that is worth $100. Due to an emergency, government spending is $150 in Period 1. If the government accumulates debt in Period 1, they will have to repay that debt at an interest rate of 2% in Period 2. The government's asset may be sold in either Period 1 or Period 2. Assume that the asset appreciates in value by 3% from Period 1 to Period 2. Assume that the asset must be sold in Period 2 if it is not sold in Period 1. Calculate the government's debt at the beginning of Period 2 if they sell their asset in Period 1.
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