Explain how each of the following policies redistributes income across generations. Is the redistribution from young to old or from old to young? a. an increase in the budget deficit

Explain how each of the following policies redistributes income across generations. Is the redistribution from young to old or from old to young? a. an increase in the budget deficit

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July 23, 2021
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Explain how each of the following policies redistributes income across generations. Is the redistribution from young to old or from old to young?

a. an increase in the budget deficit

b. more generous subsidies for education loans

c. greater investments in highways and bridges

d. an increase in Social Security benefits

Explain how each of the following policies redistributes income across generations. Is the redistribution from young to old or from old to young?

a. an increase in the budget deficit

b. more generous subsidies for education loans

c. greater investments in highways and bridges

d. an increase in Social Security benefits

Explain how each of the following policies redistributes income across generations. Is the redistribution from young to old or from old to young?

a. an increase in the budget deficit

b. more generous subsidies for education loans

c. greater investments in highways and bridges

d. an increase in Social Security benefits

Explain how each of the following policies redistributes income across generations. Is the redistribution from young to old or from old to young?

a. an increase in the budget deficit

b. more generous subsidies for education loans

c. greater investments in highways and bridges

d. an increase in Social Security benefits

Answer and ExplanationSolution by a verified expert

part a

Here is a tip:
Budget deficit refers to a situation when estimated expenditures of the government exceeds the tax revenue.

Explanation
An increase in the government budget deficit means a greater government debt. However, when the debt (principal amount) and the interest payment become due, the liability to pay-off the debt is imposed on the future generations by increasing their tax rates. Hence, the burden to pay higher taxes increases on future generations while the present generations enjoy the benefits of increased government spending. Therefore, income redistribution is from young (future generation) to old (present generation).

Verified Answer
Since the liability to pay higher taxes will be on the future generation so an increase in budget deficit redistributes the income from young to old.

part b
Here is a tip:
Subsidies are a form of economic assistance which aim to raise the welfare of the people.

Explanation
When the government introduces a policy of providing more generous subsidies for education loans, this cost of subsidy would mostly be borne by the present generation. While the heavy investment made on human capital in the present will improve the quality of the human capital in the future and the future generation will be benefited from having higher human capital. Therefore, this redistributes the income from old (present generation) to young (future generation).

Verified Answer
The government policy to provide more generous subsidies for education loans will benefit the future generation as they will have a higher human capital. Thus, the income will be redistributed from old to young

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