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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Latest answer posted July 17, 2015 at 4:29:29 AM