State and local governments typically offer their employees defined benefit pension plans. Under these plans, employees are promised a fixed monthly payment after they retire. A government’s pension liability is the amount that it has committed to paying future retirees. An article in the Economist magazine notes that as interest rates fall, “the present value of future liabilities rises.”

a. What does the author mean by the “present value of future liabilities”?

b. Why would a decline in interest rates increase the present value of a government’s future pension liabilities?