Question

Comparing the Infinitely Lived Household with the overlapping generations macro-models, analyse a) strengths and weaknesses of key assumptions b) capital formation c) bond versus tax financing

Answer 1

The overlapping generations (OLG) model is one of the dominating frameworks of analysis in the study of macroeconomic dynamics and economic growth.

The OLG model is the natural framework for the study of: (a) the life-cycle behavior (investment in human capital, work and saving for retirement), (b) the implications of the allocation of resources across the generations, such as Social Security, on the income per capita in the long-run, (c) the determinates of economic growth in the course of human history, and (d) the factors that triggered the fertility transition.