How private debt can be used to provide for consumption

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Consider an economy of three-period-lived people in overlapping generations.

Each individual is endowed with y goods when young and old and nothing when middle-aged. The population of each generation born in period t is Nt, where Nt = nNt-1. There are no assets other than loans.

Explain how private debt can be used to provide for consumption when middle-aged.

Point out who lends to whom and write the condition for the equality of supply and demand for loans in period t.

Write the budget constraints for the young, the middle-aged, and the old. Be sure to denote any notation you introduce.

Reference no: EM132950499

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