The Impact of Aging on the Macro Economy and on Financial Stability (Case Analysis)

Gaurav 4112009009

The Longevity Economy encompasses: Every dollar spent by consumers, companies, and governments, on products, services and activities that enhance the quality of life as people age The employment, personal income, corporate revenue and profit, personal and corporate paid taxes, and other macro-economic multiplier benefits associated with the value-chain and supply-chain of development, launch, sale/delivery of products and services benefiting the 50+ The productivity increases that result from production and service delivery changes that integrate the physical capabilities and behaviours of workers 50+ The value creation by new 50+ entrepreneurs The value creation enabled by new and modified products based on design for all principles The tangible and intangible benefits of older skilled workers

ANSWER 1

 Impact on government

ANSWER 2

Changes in consumption patterns High government expenditure Reduced investment returns Reduced savings Reduced current account balance Reduced labor supply Reduced productivity Thus, reducing growth
Less flow of funds in the market Withdrawl of savings for survival Less requirement of capital assets giving negative wealth effects Changing borrowing habits and investment to conservative investors Longevity risk i.e. risk to which a pension fund or life insurance company could be exposed as a result of higher-than-expected pay-out ratios.

Impact on financial system

 According to this classical theory, if aggregate demand in the economy fell, the resulting weakness in production and jobs would precipitate a decline in prices and wages. A lower level of inflation and wages would induce employers to make capital investments and employ more people, stimulating employment and restoring economic growth.

ANSWER 3

Keynes advocated increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the Depression. Subsequently, the term Keynesian economics was used to refer to the concept that optimal economic performance could be achieved and economic slumps prevented by influencing aggregate demand through activist stabilization and economic intervention policies by the government.

Contd

These do not accommodate as classical theory does not take into account government spending but it is an important part in Keynesian theory and here it is required to be included as government spendings will be affected by longevity economics

It can be done only if classical theory in its long term nature will include government spendings and Keynesian theory should work for long term as well as it focuses on immediate results

 Factors used are savings of old age population, investment of this sector of population in various capital assets, change in various borrowing habits and the longevity risk

ANSWER 4

This model is best suited for the developed nations and in developing nations the longevity is less and people used to work and produce goods rather than those who are entrepreneurs and in developed nations the model is perfect as the labor supply is affected and this affects the products and finally the prices of goods and services.

ANSWER 5

This model needs change in calculation as the factor of input i.e. land, labor and capital and from this land is missing but it is not included as the model is for longevity economics and if land is included then it will be the wealth creation factor

Along with this the longevity risk should be included in designing a model which is affecting the model and should be taken into account