(a) Define and solve a life-time utility maximization problem of a young agent born in period t. (b) Does the optimal saving amount s* depend on rt+1? Explain. (c) Solve for the steady state capital-labor ratio of this economy (i.e., kt = kt+1 = kss where kt = Kt). (d) Denote the capital stock that maximizes the consumption amount in steady state as kgold. Is your answer in part (c) equivalent to kgold? (e) Suppose the government raises runs a "fully-funded" social security program. Young workers contribute de in period 1, and the funds are invested in capital stock and Rt+1d amount of social security check is paid back when old. Solve for the inidividual's maximization problem under the fully-funded social security and compare your answer to part (a).
(a) Define and solve a life-time utility maximization problem of a young agent born in period t. (b) Does the optimal saving amount s* depend on rt+1? Explain. (c) Solve for the steady state capital-labor ratio of this economy (i.e., kt = kt+1 = kss where kt = Kt). (d) Denote the capital stock that maximizes the consumption amount in steady state as kgold. Is your answer in part (c) equivalent to kgold? (e) Suppose the government raises runs a "fully-funded" social security program. Young workers contribute de in period 1, and the funds are invested in capital stock and Rt+1d amount of social security check is paid back when old. Solve for the inidividual's maximization problem under the fully-funded social security and compare your answer to part (a).
Chapter16: Labor Markets
Section: Chapter Questions
Problem 16.12P
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