Reference no: EM131862502

Topic #1: National Debt

Imagine you have a Consulting Firm that advises governments on issues of budget deficits and debt.

You get a call from the new government of Pinkland, which is wondering whether it would be okay for them to increase their deficit.

They don't give you any more information than that, but they say they want you to tell them what the risksare, right there, on the phone, without really giving you time to look up information and data about that country. You ask to be given a little time to gather your thoughts and put together your talking points.

Given the situation, all you can do is telling them what factors/ questions are important to considerwhen assessing potential (low or high) risks of having greater deficits/debt.

So you make a numbered listthese factors/questions. Then, for each factor/ question you explain in detail why it is important to consider this factor or to ask this question (i.e. under which circumstances they may indicate a low or high risk of increasing the deficit/debt).

Topic #2 Social Security

a) Imagine you are a Representative in a district where about one half of your constituents are retired or close to retirement, and the other half is between 18 and 55 years old. You are running for re-election in 2018 and your campaign promise is to close the Social Security funding gap without increasing the deficit and without using money out of the discretionary budget.

b) You are writing a detailed memo to your constituents where you describe the challenges that Social Security is facing, and what will happen if no policy reforms are undertaken.This should include a description of how Social Security works.

c) Lay out your reform proposal. (Design the package by using the Social Security Reformer (aim at 100% closing of gap)

d) You describe each measure you chose (in your own words), and point out to your constituents who benefits, who is burdened, why you chose these measures(instead of others), and why you think that altogether the package is fair and a good mix.

e) Since your opponent in the election is campaigning against your proposal and is promising that if he wins, there will be no cuts in benefits, and no efforts to increase payroll tax revenue, and that the gap will be filledthrough money out of the discretionary budget, you include a short analysis in the memo to your constituents explaining possibleconsequences to them of using money from the discretionary budget to finance the social security funding gap, and why you are against that.

f) In addition, use the public choice model to reason about

a. Why refusing to cut benefits or raise payroll tax revenue is likely going to lead to increasing deficits and debt (in the discretionary budget).

b. Who is likely going to winthe election.