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Unformatted text preview: Homework 1 Econ 4721: Money and Banking, Fall 2009 Due Wednesday, September 30, at the beginning of class. Problem 1 Consider an overlapping generations model in which consumers live for two periods. The number of people born in each generation is constant, N t = N t +1 = N . In each period, young consumers are endowed with y 1 = 30 and old consumers are endowed with y 2 = 0 units of the single consumption good. Each member of the generations born in period 1 and later have the following utility function: ln( c 1 ,t ) + ln( c 2 ,t +1 ) with = 0 . 5. Members of the initial old generation only live for one period and have utility ln ( c 2 , 1 ) (a) Define a feasible consumption allocation for this economy. Illustrate the set of feasible allocations on a graph. (b) Define a Pareto efficient stationary allocation (the golden rule allocation) for this economy. (c) Solve for the Pareto efficient stationary allocation....
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- Spring '08