Question 1 Consider the consolidated government budget constraint ttts - 9t+s srt+s B-1 P + oc s=0 s=0 (1+r++) II (1+r++) s=1 s=1 In steady state, Tt+s ttts - 9t+s STt+s r for all s t-g for all s sr for all s We also assume that the rate of growth of money supply is constant each period. Finally, assume that Pt = 1 (Note: This doesn't mean that prices are constant over time) With these simplifications, the steady state budget constraint can be written as t-9 ST Bt-1 = 5 S=0 s=0 + (1+r) (1+r) Further suppose that Bt-1 = $14 trillion and that the steady state value of real money balances Mt+s = $2 trillion for all s Pt+s One final formula you will need is that for the sum of a geometric series: 1+ x + x2 + x3 + ... = 1 - s=0 for