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Unformatted text preview: EC3332 Money and Banking I National University of Singapore Semester I, 2011-2012 Tutorial Week of 12 September 2011 2 This problem looks at the issue of dynamics in the OG model with money is slightly different way than in the lecture. This will help you understand the material better and also demonstrate the possibility of a 2-period cycle. This also complements the problem set. 1. Consider the 2 - period overlapping generations model as in Chapter 1 with no population growth. Assume that the endowment of the good is y 1 when young and y 2 when old. Let the consumption when young and old be written as ( c 1 ,t ,c 2 ,t +1 ). Suppose the population is growing at rate n so the feasibility consumption in time period t is n ( y 1- c 1 ,t ) + ( y 2- c 2 ,t ) = 0 . (1) In a steady state or stationary allocation, we have: n ( y 1- c 1 ) + ( y 2- c 2 ) = 0 . (2) Assume that each generation has preferences over consumption when young and old given by the utility function u ( c 1 ,t ,c 2 ,t +1 ). Consumers can save via a financial)....
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- Spring '11