Consider a utility function which is a linear equation involving young and old consumption

for a typical individual in an OLG setting. The assumptions of the model are exactly the

same as the ones covered in the context of decentralized decision making set up in Chapter

1.

i. Draw the Indifference Curve associated with the utility function. What type of

preferences are reflected in terms of marginal utility? Explain your answer.

ii. Given the budget set in an intertemporal decentralized decision-making setting,

what are the possible equilibrium solutions one can obtain

in this scenario? Show the possible solutions on your graph.

iii. If an individual values the marginal utility of consumption when young to be more

worth more than the marginal utility of consumption when old, how would this

impact the equilibrium obtained in part ii of the question?

iv. If an individual values the marginal utility of consumption when old to be more

worth more than the marginal utility of consumption when young, how would this

impact the equilibrium obtained in part ii of the question?

v. Will the decentralized decision-making yield the Golden Rule solution? Explain your

answer