Which of the following will result when the pay-as-you-go Social Security program is introduced in a country?
A)The supply curve of saving will shift rightward
B)The market interest rate will decline
C)Gross investment in the economy will decline
D)The investment demand curve will become inelastic

Question

Quizplus · Accepted Answer

The pay-as-you-go Social Security program is a government-run social insurance program that is funded through payroll taxes. When introduced in a country, it will decrease individuals' disposable income, which in turn reduces gross investment in the economy. This is because individuals will have less savings available to invest in productive economic activities. Therefore, the answer is C.

The supply of savings may not necessarily shift rightward, as the pay-as-you-go system can reduce incentives to save since individuals expect to receive benefits from the government upon retiring. The market interest rate may also not necessarily decline, as this will depend on various factors such as the size of the program, the level of government borrowing, and the overall macroeconomic conditions in the country. Additionally, the investment demand curve may not necessarily become inelastic, as this will depend on other factors such as technological changes and shifts in market conditions.

Which of the Following Will Result When the Pay-As-You-Go Social