Question

1) Higher population growth is the key to economic growth in the Romer model. True ☐ False ☐ Defend your answer:

2) Other things equal, an increase in the payroll tax rate tends to decrease employment. True ☐  False  ☐  Defend your answer.

3) Consider the following excerpts from “The Debt Crisis Is Coming Soon: To avoid economic distress, the government has to reduce future entitlement spending,” by Martin Feldstein, Harvard University, WSJ March 20, 2019

If defense and other discretionary spending stays steady as a share of GDP, the annual deficit will increase by nearly 1% of GDP—from 4.2% of GDP now to about 5% of GDP 10 years from now. What does that mean for the long-run ratio of the federal debt to GDP? Federal debt will probably surpass 100% much sooner than 2028. If discretionary spending increases, debt growth will jump to 100% even quicker. When America’s creditors at home and abroad realize this, they will push up the interest rate the U.S. government pays on its debt. That will mean still more growth in debt.

To avoid economic distress, the government either has to impose higher taxes or reduce future spending. Since raising taxes weakens incentives and further slows economic growth—worsening the debt-to-GDP ratio—the better approach is to slow government spending growth. Defense spending and nondefense discretionary outlays can’t be reduced below the unprecedented and dangerously low shares of GDP that the CBO projects. Thus the only option is to throw the brakes on entitlements. In particular, the government needs to hold back the growth of Medicare, Medicaid and Social Security.  …

The simplest approach is to raise the age of eligibility for Social Security, as Congress did in 1983.  …  It would be appropriate to increase the age of eligibility for full benefits from 67 to 70 and index it to life expectancy.

Lawmakers don’t like to cut spending, but they have to do something. Otherwise the exploding national debt will be an increasing burden on our children, economic growth and our future standard of living.  

This is an opinion piece, but indicate to what extent you agree with the:

A.Projection on the budget deficit and debt to GDP ratio, and

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B.On the policy prescription to avoid the increased debt burden on future generations?

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Answer 1

Hi! Welcome to Chegg!

Due to presence of Chegg policy, I am answering one question.

2.

Ans: True.

Reason: Payroll tax increases the cost to producers as they share some burden of the tax resulting in less labor demand.

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