Using the two-period consumer choice model, explain a person's saving for each period (a) if there is no Social Security program and (b) if there is a pay-as-you-go Social Security program. What is the impact of this pay-as-you-go system (1) on the person's savings and (2) on national savings when everyone is similar to this individual?The Individual: has a diminishing marginal utility of consumption. has an income of $40,000 in period 1 and an income of $20,000 in period 2.has an interest rate for borrowing or lending at 5 percent per period.intends to consume all income over their lifetime.a. If there is no Social Security program, optimal consumption in each period leads the person to save $8000 in period 1. b. If there is a pay-as-you-go Social Security program taking $4,000 from the individual in the first period and paying this amount with a 5 percent return in the second period. Two Period Consumer Choice Economic Model

If there is no social security program, the government and the individual will both save money because the individual won’t pay social security taxes and the national government can shed itself of an expensive program. However, the government could probably find other budgets and programs to cut if it was genuinely concerned about saving money.

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Social security can be a polarizing topic in the United States. Politicians from both major parties constantly portray social security as unsustainable. It might be worth wondering why politicians rail against social security’s cost but remain mute about how much money is spent on the military, tax cuts for the wealthy, foreign aid to bellicose countries, and so on.

Ending social security would produce nominal savings for both the person and the nation, whether the person is making $40,000 or $20,000. However, savings could also be produced by, saying, tightening the Pentagon’s $700 billion budget. If the government wasn’t allotting such large amounts of money to other areas, it would likely have more money to spend on its own citizens, and it wouldn’t be so anxious about entitlements.

Indeed, in the context of the United States government, neither the $4,000 it takes from the individual nor the five percent rate that it adds on to that $4,000 qualifies as anything close to a...

(The entire section contains 2 answers and 620 words.)

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