Question 3 - Government Debt and Investment (25 points). Suppose the government debt of 100 goods in period finances a government capital not the tax cut of the example we've seen in class but a government capital project that will pay off 100 goods in +1. At that time, the government retires the debt. Assume that the returns from the capital project are used to reduce the taxes of the old person in + 1

A) How large must be so that the next generation need not pay extra taxes to retire the debt?

B) What will the effect of the debt-financed capital project be on the consumption, savings and privately owned capital of the people born in period if = ?

C) What will the effect of the debt-financed capital project be on the consumption, savings and privately owned capital of the people born in period if > ?