If households ignore effects on future generations, a pay as you go social security system:
A)decreases consumption.
B)increases the capital stock in the long run.
C)reduces national saving.
D)all of the above.

Question

Quizplus · Accepted Answer

A pay as you go social security system reduces national saving because current workers pay for the benefits of current retirees instead of saving for their own retirement. This can also lead to decreased consumption since workers have less disposable income. However, it does not necessarily increase the capital stock in the long run because the reduction in national saving can lead to less investment and therefore less capital accumulation. If households ignore effects on future generations, this exacerbates the problem as they do not save as much for their own retirement or contribute as much to the system.

If Households Ignore Effects on Future Generations, a Pay as You