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Solving for a Monetary Equilibrium Consider an OLG economy where each generation has 14 bananas when young, and 6 bananas when old. 1. What is

Solving for a Monetary Equilibrium

Consider an OLG economy where each generation has 14 bananas when young, and 6 bananas when old.

1. What is the consumption levels Cy and Co of generation 1 without money? What is their lifetime happiness?

2. Suppose central bank prints out 4 units of money, given to generation 0 for free. Solve for the equilibrium exchange rate "1 money = v bananas".

3. In part 2, what is the consumption levels Cy and co of generation 1? What is their lifetime happiness?

4. Instead of printing moneys to give to generation 0, is there another government policy that could help achieve the same consumption outcome of part 3? (Hint: social securities)

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