Week 2 Tutorial Questions
Question #1: Please do Exercise #1 from Chapter 1 from the textbook (Section 1.6:
Exercises).
Question #2: Consider the social planneràproblem in the baseline infinite horizon economy discussed Chapter 1 of the textbook and in the Week 1 lecture. Let the gross growth
rate of the young population be denoted by nt = NNt t 1 and the growth rate of the young
cohort be n?t with nt = 1 + n?t . Suppose n is constant across time and that individual
utility functions are the u(c1,t ) + u(c2,t+1 ), 2 (0, 1) with u0 (c) > 0 and u00 (c) < 0.
1. What is a Pareto Improving allocation?
2. Explain why the social planner is able to create an allocation that is a Pareto
Improvement over the autarkic outcome. Under what kind of endowment profile
(e1 , e2 ) can the planner deliver a Pareto Improving outcome?
3. What is the rate of transformation of young consumption to old consumption that
the social planner can achieve and explain how the planner is able to achieve such
a rate of transformation.
4. Can planner achieve a Pareto Improving allocation with the same rate of transformation in a finite horizon economy, i.e. an economy that lasts for T periods where
T is some finite natural number. Why or why not?
Question #3: Is cryptocurrency money? Think about the chocolate wrapper story that
we discusssed in class and use it to discuss the fragility of a cryptocurrency.
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