1 point each a a defined benefit paygo system will

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Unformatted text preview: kers. Rt = Wt. Hence, the dependency Ratio = Rt/Wt = 1. 2. Now, continuing to assume that the population is neither growing nor shrinking, what is the dependency ratio if we include young people? [2 points] Yt= Young People = Rt = Wt Dependency Ratio = Yt + Rt / Wt = 2Wt / Wt = 2 3. Now, we will assume that people arrive at this world at age 30 so that young people are not a part of the dependency ratio. a. Derive the social budget constraint. Be sure to show the formula you used. [3 points] Rt*cR + Wt*cW = 400*Wt b. What is the maximum number of units each worker can consume? [1 point] 400 c. What is the maximum number of units each retiree can consume? [1 point] 400 d. What is the endowment point in this world? [1 point] Workers: 400 Retirees: 0 4. Suppose the government introduces a social security program wherein each retiree is guaranteed a pension of 100 units. a. What is the tax rate? [2 points] 100/400 = 25% b. Oh no! The introduction of a new pesticide causes infertility. The birth rate falls by half. One century later, what is the new tax rate? [3 points] Rt = 2Et 5 Name (Last, First): SID: 100*Rt/400*Et 100*2Et/400* Et = 50% (Can list 200, which is 50% of 400) c. What type of pension program does this world have? [1 point] PAYGO Defined Benefit (accept PAYG or Pay As You Go) 5. The following questions are True / False. Be sure to mark an answer as false if the result is not necessarily true, that is, if there are exceptions. [1 point each] a. A defined benefit PAYGO system will increase in total cost if the number of retirees increases. TRUE b. A defined benefit PAYGO system will increase in per worker cost if the number of retirees increases. FALSE c. A defined contribution prefunded system will be bankrupted if the fertility rate suddenly falls. FALSE d. Retirement as an extended period of life among healthy individuals is a relatively new (20th century) phenomenon. TRUE e. Since the 1980s, labor force participation for men over the age of 55 has declined. FALSE f. Lowering the implicit tax rate creates an incentive for individuals to retire later. TRUE 6. Place the following three countries in order based upon the relative generosity of their social security programs (as measured by the “replacement rate”): Japan, United States, France. [2 points] France Japan United States 6 Name (Last, First):...
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This test prep was uploaded on 03/06/2014 for the course ECON 175 taught by Professor Lee during the Spring '08 term at University of California, Berkeley.

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