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Consider an overlapping generations model with the following characteristics: individuals are endowed with y units of the consumption good when young and nothing when old.

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Consider an overlapping generations model with the following characteristics: individuals are endowed with y units of the consumption good when young and nothing when old. The fiat money supply changes according to Mi=zMu-1 and the population grows at rate n for every period t, according to NinNi- where z and n are greater than 1. The money created in each period is used to finance a lump-sum subsidy of a:+1 goods to each old person in period t+1 A. Prove that the monetary equilibrium (cj, c2) does not maximise the utility of future generations. [10 marks] B. Under what condition of monetary expansion would this economy achieve the optimal allocation of resources? Explain your answer [10 marks]

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