Suppose there are 200 young people born each period. Each young person receives 200 goods, but nothing when middle-aged or when old. There is a storage technology. For each good put into storage in the current period, a person will receive one unit of consumption good next period. In addition, capital is available. For each unit of capital acquired in date t , 1.25 units of the consumption good will be received at date t + 2. If the person liquidates capital after one period, then only 0.8 units of the consumption good can be obtained date t+1. Assume that 10 percent of the people want to consume when middle-aged and the remainder want to consume when old.
a. How many goods will the bank hold in the form of storage? How many in capital?
b. If there is no bank run, how many goods will middle-aged people consume? How many goods will an old person consume?