Because the "baby boom" has skewed the nation's population distributio

Because the "baby boom" has skewed the nation's population distribution, net benefits vary greatly from generation to generation. While the "baby boomers" have worked, from the late 1960s through the next couple of decades, the government has greatly expanded the benefits that it offers to the elderly. These benefits have been affordable because there have been so many more workers than retirees. But once the "baby boomers" begin to retire, the ratio of workers to retirees will plummet from 3.4 today to 1.9 in 2037.

If these government programs are to continue at their current level at that time - and many of the programs have mandatory spending levels - a greater lifetime tax burden is implied for today's young than the benefits they can expect to receive. One estimate is that to neutralize the imbalance of current policy, either discretionary spending would have to be cut by 19.6% or taxes would have to be increased 11.4% annually.

This is more of an equity issue than an economic issue, and is thus a matter of ethical judgement whether or not this burden on the young is unfair. Reducing the national debt eliminates the explicit burden, although it is not large enough to eliminate the implicit burden. When the national debt was accumulated, taxpayers at the time enjoyed a higher standard of living - either through lower taxes or higher government services - than would have been available were there no budget deficits. The result of their higher standard of living is a lower (potential) standard of living in the future, because the "crowding out" effect means that the future capital stock, and with it the future productive capacity of the economy, is smaller than it would have been had we never accumulated a national debt. In effect, budget deficits transferred the consumption of future generations to past generations. Reducing the national debt redirects that transfer from the present generation back to the future. Instead of using the surplus to consume now, we are paying off the debt, which will lead to a greater capital stock and productive capacity in the future and with it a higher standard of living.

1. What is the meaning of the author's claim "This is more of an equity issue than an economic issue" in the opening of paragraph three?

(A) economists refuse to consider ethical judgments when providing analysis
(B) the costs of extraordinary tax rates impact the equity of the young, b...not their fiscal policy
(C) economics pertains to the financial implications of the burden, but not: its fairness
(D) equity issues involve the value after expenses such as taxes, whereas economics is the study of general financial matters
(E) the economic issues related to these potential tax rate hikes are better modeled by equity worksheets



2. Which of the following financial situations is most analogous to the financial situation described in the passage?

(A) A small business borrows heavily to invest in new equipment but is able to pay off its debt early when it is awarded a lucrative government contract.
(B) A small business subsidizes its products to meet consumer price demands but is later faced with mounting debts.
(C) A small business is turned down Tor a loan at a local bank because the owners have bad credit histories.
(D) A small business sinks further into debt when it is forced to exchange cheap bank loans for higher rate corporate bonds.
(E) A small business is able to cut spending through greater commercial efficiency and thereby payoff its. long-term debts.



3. The second sentence of the second paragraph serves to:

(A) exemplify the severity of the preceding statement
(B) provide a point of reference for further calculations
(C) demonstrate the tax rate growth from 1960 to 2037
(D) provide evidence for an earlier assertion
(E) derive numbers from previous calculations



4. This passage is most probably an excerpt from a text with a primary focus on which of the following?

(A) the effect of the "baby boom’ on economics in the United States
(B) economic forecasts for the next three generations
(C) ethical judgments in economic policy
(D) the national debt of the United States
(E) a ‘tax and spend’ fiscal policy