Consider an economy with a growing population in which each person is endowed with y₁when young and y₂ when old. Assume that y₂ is sufficiently small that everyone wants to consume more than  y₂ in the second period of life. Bear in mind that under the new assumptions, the equations and graphs you find may differ from the ones found previously.

a. Find the feasible set.
b. Assume that all people within a generation will be treated alike and graph the set of stationary per-capita feasible allocations. Draw arbitrarily located, but correctly shaped, indifference curves on your graph and point out the allocation that maximizes the utility of the future generations.
c. Turning now to the monetary equilibrium, find the equation representing the equality of supply and demand in the market for money.

d. Assume a stationary solution and a constant money supply. Use the equation in part c to find v_t +₁/v_t
e. Draw the budget set for a person in this monetary equilibrium. Does this monetary equilibrium maximize the utility of future generations? Explain.

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Economy A C2 У Economy B У