Consider the standard OLG model we have done in class. Population grows at constant rate n , i.e. Nt = nNt−1 for t = 1, 2, 3.... There is also N0 initial old people. All future generations are endowed with 20 potatoes when young, and 10 potatoes when old (each person). The initial old are endowed with 10 potatoes each. If the good was storable each future generation would want to consume 15 potatoes when young and 15 potatoes when old.
- 1. Write down the constraint of the social planner.
- 2. Assume all people within a generation will be treated alike and graph the set of feasible allocations. Also for the rest of the problem consider only stationary allocations. Label the graph completely.
- 3.In the graph label both the endowment of future generations and the golden rule allocation that the social planner would choose if he were to maximize the utility of future generations.
- 4. In the graph label the allocation the social planner would choose if he wanted to maximize the utility of the initial old generation.
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