Economics Assignment Paper on Overlapping Generation Model

Overlapping Generation Model

Economic issues in the current world have contributed to the shift of attention towards how people sustain their living standards. Currently, majorities borrow primarily from the overlapping generation model of economics. In overlapping generation, at the beginning of active human economic life, individuals are endowed with high labor power. Humans often use the high labor power to sell to firms. This is done to ensure that more savings are done for an avoidable lifestyle. The conditions that are unavoidable include the need to earn high return investments and security at old age. Besides, consumption is financed through savings made by people while at a young age.

The idea of saving at a young age to cater for one’s well-being at old age might be a fallacy in economic approach. In an economic approach, an individual might argue that the amount saved by young working or employed individuals is used to compensate the elderly who saved earlier. Therefore, it is true to say that the contributions of today’s workers’ pay the pensions of today’s retirees. The money is transferred between generations, not across time. For instance, this has been applied by the America social security in pay as you go. Here, workers’ pay Social Security taxes into the program and money flows back out as monthly income to beneficiaries.

The benefit of overlapping very crucial for economic growth. This because it eliminates budget constraints through huge savings. In conclusion, the overlapping generation model must be understood by great minds, as it allows for a large capital accumulation to serve in coming generations across the human race. This model applies to many countries across the world and will economically serve more generations to come.