21 section

21 section - • Leads to higher interest rate • The NCO...

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Ec 10 Feldstein Lecture 21/03/2008 11:13:00 Social Security now: pay as you go Benefit growth:  Growth in labor force   big problem o Not growing fast enough, slower than baby boomer retiring rate o Possible alternative: raise social security rates o Other alt: get returns through financial instruments Transition Guranteed minimum benefit Wages grow  Benefit(t+1)/Tax(t) = Rate(t+1)/Rate(t) * LaborForce(t+1)/LF(t) *  Wage(t+1)/Wage(t) o T = time that you pay the tax, not necessarily a year count Capital Flight Mkt for loanable funds demand shifts out b/c of more NCO (D=I+NCO)
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Unformatted text preview: • Leads to higher interest rate • The NCO curve shifts out to the right as well o Leads to increased Q of NCO, and higher Q of currency produced, and lowered E (exchange rate) o ← Trade Policy • New tariff imports decrease, exports stay same o D = X- IM D shifts up o Leads to increase of Exchange rate E o Q of NX doesn’t change b/c stronger $ offsets tariff • Nothing else changes. Q of currency stays same. Nothing changes b/c we assume NCO is perfectly inelastic. 21/03/2008 11:13:00 ← 21/03/2008 11:13:00 ←...
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21 section - • Leads to higher interest rate • The NCO...

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