2. Consider an overlapping generations model with a pay-as-you-go pension system. The government collects the contributions from young generation and transfers them to old generation. d is the contribution from a young person to the pension system. b is the benefit received by old person. (a) Derive the following intertemporal budget constraint, b 1 + rt+1 C₁t + C2t+1 1 + rt+1 = W₂ - d + (b) Derive the following saving function, 1 St= -(wt - d) — 2+p 1+p (2 + p)(1 + rt+1) ·bl
2. Consider an overlapping generations model with a pay-as-you-go pension system. The government collects the contributions from young generation and transfers them to old generation. d is the contribution from a young person to the pension system. b is the benefit received by old person. (a) Derive the following intertemporal budget constraint, b 1 + rt+1 C₁t + C2t+1 1 + rt+1 = W₂ - d + (b) Derive the following saving function, 1 St= -(wt - d) — 2+p 1+p (2 + p)(1 + rt+1) ·bl
Chapter21: Financial Markets, Saving, And Investment
Section: Chapter Questions
Problem 9P
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