Consumer budget constraints when young

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Reference no: EM1319326

Q. Consider the following overlapping generation's economy with two assets, capital also money. The number of consumers in each generation is Nt = 1. Consumers are endowed with y1 = 1 goods when young also nothing (y2 = 0) when old. Assume kt units of capital produce f (kt ) = 2√kt units of consumption good at t + 1. Let Mt = z Mt -1, where z > 1. The seignior age income is utilized to ?nance a lump-sum transfer of at goods to each young person in period t.

(a) Write down the consumer budget constraints when young also when old the consumer lifetime budget constraint the government budget constraint also the market clearing conditions.

(b) Solve for the capital stock k in the stationary equilibrium.

(c) Consider a reduce in the money growth rate from z to z ′ = 1. Determine the e?ect of this change on the capital stock k, real GDP also the welfare (utility) of the future generations.

Reference no: EM1319326

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