A worker plans to retire at the age of 65, at which time he will start collecting
Question:
(a) If retirement benefits are fully adjusted for inflation?
(b) If retirement benefits are not fully adjusted for inflation?
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a There will be no effect on the persons retirement decision if retirement benefits are fully adjusted for inflation as nothing changes in the persons calculations in real terms the relative magnitudes of prices wages and retirement benefits are the same with or without inflation The person faces the same choice so his decision does not change b If retirement benefits are not adjusted for inflation the purchasing power of retirement benefits falls If the person does not retire he can enjoy the same consumption as he would without inflation as wages are assumed to fully adjust ...View the full answer
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