Deficits, debt dynamics, and the inflation tax when governments print to pay.
Warming up the engine…
The government's intertemporal accounting: deficits are financed by borrowing or money creation, and money creation earns seigniorage, the inflation tax.
Deficit = ΔB + ΔM; seigniorage ≈ (money growth) × (real balances held)
Debt today is taxes tomorrow, unless the printer runs. Printing collects revenue from everyone holding cash as inflation erodes it, which works until people flee the currency: the hyperinflation endgame of fiscal dominance.
Distinguish debt sustainability (r vs g dynamics) from seigniorage financing, mixing them costs marks.
Now prove you have it
Move the curve to where you think it lands, and get told exactly which part you got right.
Real-world scenarios on this model
Also in Advanced Macro & Growth
Equilibrium at π 20, R 32.
Equilibrium: π* = 20.0, R* = 32.0
Current equations
Governments that cannot tax or borrow can print. The curve shows the revenue inflationinflationA sustained rise in the overall price level, eroding money's purchasing power. raises by eroding the money people hold. It is a hill: at low inflation there is room to raise more, but past the peak people flee the currency and more inflation raises LESS.