homework1 - Econ 451: Homework 1 (Due Jan. 28) 1. Consider...

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Econ 451: Homework 1 (Due Jan. 28) 1. Consider a simple overlapping generations model as we studied in class. The economy has a constant population of N = 100. Individual are endowed with y = 10 units of the consumption good when young and nothing when old. (a) Consider the planner’s problem ±rst. (i) Write down the equation for the feasible set line. (ii) Draw the feasible set on a graph. Then draw a regular indi²erence curve to illustrate the stationary allocation c 1 and c 2 that maximizes the utility of future generations (those who live two periods). (b) Now look at a monetary equilibrium. Suppose the initial old are endowed with a total of M units of ±at money. (i) Write down the ±rst-period and second-period budget constraints for a typ- ical individual. Combine these constraints into a lifetime budget constraint. (ii) Write down the market clearing condition in an arbitrary period t . Use this condition to ±nd the real rate of return of ±at money v t +1 =v t . (c) Next, suppose agents’ preferences are such that each individual’s real money
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This note was uploaded on 04/06/2010 for the course ECON 0 at Pennsylvania State University, University Park.

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homework1 - Econ 451: Homework 1 (Due Jan. 28) 1. Consider...

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