The social security system levies a tax on workers

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Q1. On April 1, 1996, Taco Bell, the fast-food chain ran a full-page as in the New York Times with this news: "In an effort to help the national debt, Taco Bell is pleased to announce that we have agreed to purchase the Liberty Bell, one of our country's most historic treasures. It will now be called the Taco Liberty Bell and will still be accessible to the American public for viewing. We hope our move will prompt other corporations to take similar action to so their part to reduce the country's debt." Would such actions by U.S. corporations actually reduce the national debt as it is now measured? How would your answer change if the U.S. government adopted capital budget? Do you think these actions represent a true reduction in the government's indebtedness?

Q2. The social security system levies a tax on workers and pays benefits to the elderly. Suppose that Congress increases both the tax and benefit. For simplicity, assume that congress announces that the increase will last for only one year.

a. How do you suppose this change would affect the economy?

b. Does your answer depend on whether generations are altruistically linked?

Reference no: EM135574

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