Question: Using an overlapping generations model show how government borrowing can transfer income from the young generation to the older generation. Assume there are equal numbers

Using an overlapping generations model show how government borrowing can transfer income from the young generation to the older generation. Assume there are equal numbers of three generations in a population with each generation 20 years long and each person has a fixed income of $50,000.00 over a 20-year period. There is no private saving where everyone consumes their entire income. This situation is expected to continue forever. If the government borrows $60,000.00 with zero interest to finance public consumption with the loan to be fully repaid by 2045.

(i) Provide a detailed discussion of the case. (3 Marks)

(ii) Use a table to show the elements of an Overlapping Generations Model. (15 Marks)

(iii) State the overall consequence of this policy. (2 Mark)

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