3. The Social Security system levies a tax on workers and pays benefits to the elderly. Suppose that Congress increases both the tax and the benefits.

PROBLEMS AND APPLICATIONS For simplicity, assume that Congress announces that the increases will last for one year only.

a. How do you suppose this change would affect the economy? (Hint: Think about the marginal propensities to consume of the young and the old.)

b. Does your answer depend on whether generations are altruistically linked? LOP8