Answer
a) Benefits per retiree would shrink, and the tax payments per worker would also shrink.
b) Total expenditures would increase, as would tax payments per worker.
c) Total expenditures would increase, and the benefits per retiree would shrink.
d) The answers above imply that there is a group of people who will be adversely affected by whatever decision is made by policy holders.
Work Step by Step
a) As the pool of retirees grows, there is a fixed (frozen) pool of benefits. Since the benefit pool is fixed as the number of retirees increases, the benefits per retiree would shrink.
Since the number of workers is increasing, we also have a fixed pool of benefits to pay out. More workers means each worker will have to contribute less to make the pool have the same value.
b) With benefits per retiree frozen, there are more retirees everyday. Thus, the total expenditures would increase. Since the number of workers isn't increasing as quickly as the number of retirees, the tax payments per worker would also increase.
c) The number of retirees increases faster than the number of workers. Freezing tax payments per worker would increase the total expenditures at a rate equal to the increase in the number of workers. However, since the number of retirees increases faster than the number of workers, the benefit per retiree would decline over time.
