If Households Ignore Effects on Future Generations When a Pay

question 35

Multiple Choice

If households ignore effects on future generations when a pay as you go social security system starts, the then elderly:

• A)have a positive income effect on their consumption.
• B)receive benefits that in present value is less the present value of their contributions.
• C)receive low returns on any taxes paid into the system.
• D)all of the above.

---

Definitions:

Wealth

The total value of all financial and material possessions owned by an individual, entity, or country.

Probability

A measure of the likelihood that a specific event will occur, often expressed as a number between 0 and 1, where 1 represents certainty.

Von Neumann-Morgenstern Utility Function

A mathematical model that represents an individual's preference structure in a way that allows for measurable utility and decision-making under uncertainty.

Expected Utility Maximizer

An economic agent who makes choices under uncertainty to maximize their expected satisfaction or utility.