Consider an economy with a growing population in which each person is endowed with y₁ when young and y₂ when old but the endowment in the old age is sufficiently small that everyone wants to consume more that y₂ in the second period of life.

i) Find the feasible set. What is the maximum young consumption possible? What is the maximum old consumption possible?

ii) Assuming stationary equilibrium with no population growth, draw a well labeled graph showing Golden Rule allocation. (The graph must reflect the answers you have obtained in part i.)

iii) Consider monetary equilibrium now. Find the equation representing the equality of supply and demand in the market for money.

iv) In the monetary setting assuming stationary equilibrium with constant money supply, find the real return for money.

v) Draw the budget set for a person in this monetary equilibrium in a well labeled graph. Does this monetary equilibrium maximize the utility of future generations?