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

Question

Quizplus · Accepted Answer

A pay as you go social security system collects taxes from current workers to pay benefits to current retirees. If households ignore the effects on future generations, they may not save enough for their own retirement and rely solely on social security benefits. In this scenario, the elderly would receive benefits that are greater than the present value of their contributions to the system because there are fewer workers contributing to support more beneficiaries. This means that younger generations will end up paying more into the system than what they will receive in benefits. However, this scenario assumes that households are not considering the consequences on future generations, meaning that they are not making the necessary investments to secure their own retirement.

If Households Ignore Effects on Future Generations, When a Pay