2. Consider the following economy. Individuals are endowed with y units of the consumption good when...

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2. Consider the following economy. Individuals are endowed with y units of the consumption good when young and nothing when old, but would like to consume in both periods. People face a lump-sum tax of 7 goods when young and a rate of expansion of the fiat money supply of z > 1. The tax and the expansion of the fiat money stock are used to finance government purchases of g goods per old person in every period. There are N people in every generation (constant population). (a) Find the individual's budget constraints when young and when old. Combine them to derive the individual's lifetime budget constraint. Explain the results. (25%) (b) Find the government's budget constraint. Explain each component. (25%) (c) Find the feasible set. Explain what is the role of z, 7 and g in it, and why. (25%) (d) Now consider instead the case where the lump-sum tax of 7 goods is levied on the old and used to finance a transfer of g goods to the young. Derive the new government budget constraint and feasible set. Explain the results. (25%). 2. Consider the following economy. Individuals are endowed with y units of the consumption good when young and nothing when old, but would like to consume in both periods. People face a lump-sum tax of 7 goods when young and a rate of expansion of the fiat money supply of z > 1. The tax and the expansion of the fiat money stock are used to finance government purchases of g goods per old person in every period. There are N people in every generation (constant population). (a) Find the individual's budget constraints when young and when old. Combine them to derive the individual's lifetime budget constraint. Explain the results. (25%) (b) Find the government's budget constraint. Explain each component. (25%) (c) Find the feasible set. Explain what is the role of z, 7 and g in it, and why. (25%) (d) Now consider instead the case where the lump-sum tax of 7 goods is levied on the old and used to finance a transfer of g goods to the young. Derive the new government budget constraint and feasible set. Explain the results. (25%).