Consider overlapping generation economy in which each individual lives for two periods.
Population is constant. The individual’s endowments in each period are exogenous. The first-period endowment of an individual born at time t is equal to et, and the second-period endowment of the same individual is equal to et+1, where g can be negative. Each individual saves by investing in a constant returns technology, where each unit invested yields 1+r units of output in the following period.
An individual born at time t maximizes
Finally, the first period endowments grow at rate m so that
A) How does an increase in the growth rate of income expected by one individual, g, affect his saving rate?
B) Assume that g=m, how does an increase in m affect savings?
C) In light of these results, asses the theoretical validity of the claim that high growth is responsible for the high Japanese saving rate.



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