Unformatted text preview: PADP 8670 Fertig Final Exam Practice Problems Fall 2011 UGA 1. Social security is a program in the US that gives a monthly payment to citizens over the age 65. It is paid by payroll taxes on the working. To be eligible for the benefit, retirees must have worked (and paid payroll taxes) for a certain number of years. Note that no numbers or equations are required, just graphs. a. Using an intertemporal consumption graph (where the x-axis is consumption before age 65 and the y-axis is consumption at age 65+), show how the social security benefit affects the intertemporal budget constraint. Assume that the initial endowment point has high income when age<65 and low income when age65. Assume that the interest rate is the same with and without the social security program. b. Add indifference curves to your 2 budget lines however you like (obeying the basic rules of well-behaving indifference curves). According to your graph, how does the social security benefit affect consumption in retirement and savings prior to retirement? 2. The Census Bureau now calculating the poverty rate in two ways one using the official Orchansky method and one using supplemental information. The supplemental method is described in detail here: http://www.census.gov/hhes/povmeas/methodology/supplemental/research/Short_R esearchSPM2010.pdf. Write a one-page essay describing the differences in the two measures, and the differences in the resulting poverty rates using your own words. Which groups are most affected by the measurement method and why? 3. Cost-benefit analysis is the most common tool in evaluating public policies. Discuss the Pareto and Kaldor-Hicks criteria for policy analysis. Explain how the two criteria differ and how these criteria relate to cost-benefit analysis. ...
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