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For the economy described in exercise 20.3, relate the structure of social security programs achieving the Golden Rule to dynamic exigency and indecency.
Assume that all consumers have preferences represented by U = If the budget constraint is
determine the relationship between the level of savings and the parameters τ and ß of the social security program. Assuming that yt = , find the steady-state level of the capital–labor ratio. Solve for the social security programs that lead to the Golden Rule. Show that none of these programs is fully funded. What is the form of the pay-as-you-go system that achieves the Golden Rule?