Consider a two-period OLG model, where each generation consists of n people. There is no production in this model and each person receives constant income Y. Young persons can buy government bonds when young and sell them when old. Let 1 denote the first period (young) and 2 the second period (old). For simplicity, assume constant interest rate.
Please look at attachment file for complete question.
Solutions are attached,
I've tried to work this out a little more intuitively. Plugging in numbers ...
This solution examines a two-period OLG model and calculates its aggregate consumption to check if the Ricardian equation holds in this situation.