Assignment:
The article below is a part of the myRA account debate. The funds deposited in myRA/IRA accounts are not subject to taxation until withdrawal, which can happen without penalty only after the program participants reach the age of 59. The new retirement account, myRA, would replace the current saver's tax credit with a federal 401k-style match for middle- and low-income workers.
1) The article says "myRA ... was a long-term investment in national saving." However, according to the system of national accounts that we studied in Lecture 1, investment and saving have different meanings. Explain the difference between how these terms are used in the article vs. in the system of national accounts.
2) Assume supply of loanable funds is inelastic. Using the loanable funds market diagram, illustrate the expected effect of the myRA introduction. Label both axes, all curves, and write out expressions for demand and supply of loanable funds. Explain the economic meaning of the slope of the supply curve. To prepare for bonus parts of the exam, you might want to express the slope of each curve using derivatives.
3) Describe how the new equilibrium is different from the old equilibrium.
4) Relax the assumption of inelastic supply of loanable funds. Draw the new loanable funds market diagram and illustrate the expected effect of the myRA introduction. Label both axes, all curves, and write out expressions for demand and supply of loanable funds. Explain the economic meaning of the slope of the supply curve. To prepare for bonus parts of the exam, you might want to express the slope of each curve using derivatives.
5) Describe how the new equilibrium is different from the old equilibrium and how it is different from the equilibrium predicted by your model in part (3).
6) Why are the slopes of the supply curves you drew in parts (2) and (4) different? Define income and substitution effects and use these terms in your explanation.
7) Do you think the introduction of myRA is a good idea for the US economy? Why?
Hint: recall our discussion of Mankiw's article on the first day of the course.
Readings:
Was myRA Misrepresented? Why the Trump Administration Killed the Program
By John Sullivan