Consider the Samuelson model with one good and no production and in which consumers are endowed with one unit of good in youth and none in old age and where their utility functions are u(x0 , x1) = log x0 + (0.5) log x1.
(a) Compute formulas for a stationary spot price equilibrium, (x0 , x1, P , r , G, T), with nonnegative interest rate rand with P = 1.
(b) Show on a diagram all feasible stationary allocations and those allocations that are Pareto optimal. Show in similar diagrams the allocations and budget sets for the equilibria with interest rates r = 0 and r = 1. Indicate the tax payments on the diagrams for each of these equilibria.