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Chapter 27: Problem 7

(Related to the Apply the Concept on page 949 ) According to a 2017 Congressional Budget Office (CBO) report, "By 2047,22 percent of the population will be age 65 or older, CBO anticipates, compared with 15 percent today." Why is the over-65 population increasing so rapidly? What are the implications of this increase for future federal spending on Social Security and Medicare as a percentage of GDP? What choices do policymakers face in dealing with this issue?

Short Answer

Expert verified
The over-65 population is increasing rapidly due to factors such as increased life expectancy and the Baby Boomer generation entering retirement age. This surge can lead to increased federal spending on Social Security and Medicare as these individuals become eligible, thus potentially elevating these costs as a percentage of GDP. Policymakers face challenging decisions in response to this trend, including the possibility of changing benefits, eligibility ages, tax structures, or focusing on economic growth.

Step by step solution

01

Understanding the Increase in Over-65 Population

An investigation into the increase in the over-65 population will uncover various factors. This may include increased life expectancy due to advances in healthcare and the large Baby Boomer generation entering retirement age.
02

Implications for Future Federal Spending

This increase in the over-65 population implies that more people will be eligible for Social Security and Medicare. As a result, it is reasonable to conclude that this will increase future federal spending on these programs in relation to the country's GDP.
03

Policymaker Choices

Given the probable increase in spending, policymakers are faced with the decisions involving maintaining, reducing, or increasing benefits; adjusting the eligibility age for these programs; altering tax rates or structures to fund these programs; and taking steps to stimulate economic growth to increase the size of the GDP against which these costs are measured.

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Most popular questions from this chapter

(Related to the Apply the Concept on page 969) The following is from a message by President Herbert Hoover to Congress, dated May 5,1932: I need not recount that the revenues of the Government as estimated for the next fiscal year show a decrease of about \(\$ 1,700,000,000\) below the fiscal year \(1929,\) and inexorably require a broader basis of taxation and a drastic reduction of expenditures in order to balance the Budget. Nothing is more necessary at this time than balancing the Budget. Do you think President Hoover was correct in saying that, in \(1932,\) nothing was more necessary than balancing the federal government's budget? Briefly explain.

Use an aggregate demand and aggregate supply graph to illustrate the situation where equilibrium initially occurs with real GDP equal to potential GDP and then the aggregate demand curve shifts to the left. What actions can Congress and the president take to move real GDP back to potential GDP? Show the results of these actions on your graph. Assume that the long-run aggregate supply (LRAS) curve doesn't shift.

Suppose that at the same time that Congress and the president pursue an expansionary fiscal policy, the Federal Reserve pursues an expansionary monetary policy. How might an expansionary monetary policy affect the extent of crowding out in the short run?

In \(2009,\) Congress and the president enacted "cash for clunkers" legislation that paid up to \(\$ 4,500\) to people buying new cars if they traded in an older, low-gas-mileage car. Was this legislation an example of fiscal policy? Does your answer depend on what goals Congress and the president had in mind when they enacted the legislation?

In what ways does the federal budget serve as an automatic stabilizer for the economy?
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