Open Yale CoursesECON 251: Financial TheoryLecture 12 - Overlapping Generations Models of the Economy<< previous session| next session >>Overview:In order for Social Security to work, people have to believe there's some possibility that the world will lastforever, so that each old generation will have a young generation to support it. The overlapping generationsmodel, invented by Allais and Samuelson but here augmented with land, represents such a situation.Financial equilibrium can again be reduced to general equilibrium. At first glance it would seem that themodel requires a solution of an infinite number of supply equals demand equations, one for each time period.But by assuming stationarity, the whole analysis can be reduced to one equation. In this mathematicalframework we reach an even more precise and subtle understanding of Social Security and the real rate of
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