please answer all question, steps as detal as possible
Chapter 1: Consider an economy where n = 1.25 and yt =1.1yt-1 (an economy where both population and endowment are growing. Assume old people do not receive any endowments. Assume that a young person’s preferences are such that they want to consume two-thirds of their endowment such that
C1.t = 0.66yt.
Given above:
Show the equation for supply of transfers by a young individual at time t. (2 marks)
Show the equation for demand of transfers by an old individual at time t (Note and old person in t is young at time t-1). (2 marks)
Using the equilibrium for transfers find the rate of transfer between young and the old. (4 marks)
Now suppose population growth rate is 1.2. Calculate and find the new rate of transfer. Given your answer explain intuitively the impact of population growth on rate of transfer. (1 +3 = 4 marks). (NOTE: Grade is allocated for the quality of the explanation).
In the current Covid-19 scenario, there is a decline in older generation combined with economic slowdown. Explain in few sentences, what impact would these have on the rate of transfer. (3 marks) (NOTE: Grade is allocated for the quality of the explanation).
Sample Solution