1. Why do we typically consider economies where the endowment when young is greater than the endowment when old? Consider a model economy as described in Module 1, but assume that workers are endowed with y units of the consumption good when old and 0 units when young. Assume the population is constant over time, i.e. Nt = Nt1 = N for all t 0.

(a) Explaintheplanner'sprobleminwords.

(b) Derive the planner's feasible set for a given period t and do not impose the assumption that the

allocation is stationary.

(c) What is a stationary allocation? Explain.

(d) Assume the planner wants to implement a stationary allocation. Draw a figure that depicts the solution to the planner's problem using the feasible set and sample indifference curves that satisfy the properties discussed in Lecture 1.

Now consider a decentralized version of this economy where individuals make their own consumption and trading decisions. Do you think there is a way to sustain trade between the young and the old in this case? Explain.