6. Consider the model of illiquidity where individuals live for three periods (young, middle aged and old). There are N individuals in each generation. Individuals want to consume in all three periods of their life, but are endowed with y units of the consumption good when young and nothing in the other two periods of life. Assume that the initial stock of money Mo is equally distributed among the initial middle aged. Money supply grows at a gross rate 2 (2 > 1). There is a single physical asset - capital. Two periods after its creation, capital can produce goods with technology f ( k ) = ki. The initial old are endowed with f (ko) units of good in the first period. (a) Explain the conditions under which private borrowing and lending are not feasible in this economy. (2 marks) (b) Given the pattern of endowments, explain the optimal saving decisions to finance consumption when middle aged and when old. (2 marks) (c) Use your answer in (b), solve for the maximum level of capital stock in this economy. (2 marks) (d) Explain if the Tobin effect exists in this economy (if at all). (2 marks) (e) How would the existence of financial intermediaries help improve welfare of all future generations in this economy? Briefly explain. (2 marks)