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Module 4.docx

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Department
Economics (Arts)
Course
ECON 227
Professor
Christopher Ragan
Semester
Fall

Description
Module 4 Lecture 1 October-28-12 8:04 PM -A declining fertility rate has reduced the population growth rate (from above 3% in about 1960 (baby boom) to about 1.5% in 2010...is downward sloping) -Baby boom: fertility rate of about 3.6, currently at about 1.6 -In order for pop to remain constant (without immigration or emigration), fertility rate would have to be about 2.1 ("replacement rate"). -Population growth with fertility rate lower than 2.1 is due to immigration rates -All people born share common age of 0. -High average age and declining fertility rate= aging population -Aging is not a bad thing, necessarily. But this stuff matters to public finances. Changing proportions of populations requires adaptation from society. -Labour force participation rat expected to drop about 6% over the next 25 years (labour force will grow at a declining rate) -The looming fiscal squeeze Part 1: Over the next 30 years, there will be: -Reduced rate in real per capita GDP (for any given rate of product growth) -Reduced rate in per capita tax base (growth rate will be cut roughly in half!) -Small differences in growth rate are irrelevant in the short run, but VERY relevant in the long run (compound interest) Part 2: -1. Need for public spending: Health care spending, elderly benefits -2. Offsetting effects expected to be small: Education, children's benefits, and some social services. (We will mostly ignore these savings because of their minuteness relative to 1.) -The problem is that 1. blows 2. out of the water Health Care: -Aging population costs more in health care (nearly 10 fold) -Other expenses of health care: As people get richer (increase in GDP), we demand more of most things, including health care. Bigger problem is technological advance in health care: one type is inventions of consumer electronics and coming up with cheaper ways to do things we've always done (good cause it drives down costs) and the other type is inventing a way to do somet
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