Question 2 Consider an overlapping generations model with the following characteristics: individuals are endowed with y units of the consumption good when young and nothing when old. The fiat money supply changes according to Mt =zMt-1 and the population grows at rate n for every period t, according to Nt =nNt-1 where z and n are greater than i. The money created in each period is used to finance a lump-sum subsidy of at+1 goods to each old person in period t+1. Prove that the monetary equilibrium (?∗, ?∗) does not maximise the utility of future generations. ii. Under what condition of monetary expansion would this economy achieve the optimal allocation of resources? Explain your answer.
Question 2
Consider an overlapping generations model with the following characteristics: individuals are endowed with y units of the consumption good when young and nothing when old. The fiat money supply changes according to Mt =zMt-1 and the population grows at rate n for every period t, according to Nt =nNt-1 where z and n are greater than
i. The money created in each period is used to finance a lump-sum subsidy of at+1
goods to each old person in period t+1. Prove that the monetary equilibrium (?∗, ?∗) does not maximise the utility of future generations.
ii. Under what condition of monetary expansion would this economy achieve the optimal allocation of resources? Explain your answer.
![](/static/compass_v2/shared-icons/check-mark.png)
A condition or state in which economic forces are in balance is referred to as "economic equilibrium." Economic equilibrium is a set of economic variables (usually price and quantity) that normal economic processes, such as supply and demand, bring the economy toward.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
![Principles of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781305585126/9781305585126_smallCoverImage.gif)
![Managerial Economics: A Problem Solving Approach](https://www.bartleby.com/isbn_cover_images/9781337106665/9781337106665_smallCoverImage.gif)
![Managerial Economics & Business Strategy (Mcgraw-…](https://www.bartleby.com/isbn_cover_images/9781259290619/9781259290619_smallCoverImage.gif)