If households ignore effects on future generations when a pay as you go social security system starts, the then elderly:
A)have a positive income effect on their consumption.
B)receive benefits that in present value is less the present value of their contributions.
C)receive low returns on any taxes paid into the system.
D)all of the above.

Question

Quizplus · Accepted Answer

When a pay-as-you-go social security system starts, the then elderly benefit because they receive social security payments without having made contributions to the system for a significant period, if at all. This results in a positive income effect on their consumption, as they have more resources available to spend or save. Choices B and C do not apply in this context, as they describe scenarios not relevant to the initial generation benefiting from the inception of such a system.

If Households Ignore Effects on Future Generations When a Pay