Answer to Question #10431 in Macroeconomics for joyce kik

Question

Suppose the government announces that the Social Security system is in trouble, and it may have to cut retirement benefits in the future. How are consumers likely to react? what is then likely to happen to demand and output today?

Answer 1

Answer:
If government announces that the Social Security system is in trouble, and it may have to cut retirement benefits in the future then consumers increase their current consumption, and it lead to increase demand for most of goods. Increasing of demand may lead to soaring a supply and output nowadays.
So next chain reflects the reaction of consumer and changes in demand, supply and output:

Retirement in future↓ →Consumption nowadays↑ →Demand↑ →Supply and output↑

This announces will increase current economy and will lead to economic growth.