# ECON 3130 Seattle PS 1, Part 2 please read every question carfully and answer each one of them. ECON-3130, Winter 2019 Seattle University PS 1, Part 2 (10

ECON 3130 Seattle PS 1, Part 2 please read every question carfully and answer each one of them. ECON-3130, Winter 2019
Seattle University
PS 1, Part 2
(10 points)
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.
Was myRA Misrepresented? Why the Trump Administration Killed the Program
by John Sullivan, Editor-In-Chief January 10, 2019
[T]he reason for the interview, was [Mark Iwry’s] role as a principal architect and author of the
myRA program, announced during President Obama’s State of the Union speech in 2014, only to
be discontinued in July 2017. …
Mark Iwry doesn’t like certain descriptions of the now defunct, about-to-be-revived myRA
program, a high-profile part of the previous administration’s attempt to help Americans save. …
The Trump administration justified their decision to cancel based on low adoption and high peraccount costs incurred by the government, but Iwry doesn’t buy it. …
“What was reported was simply that the Trump Administration looked at the myRA a little over
a year after it had launched, and there were only several tens of thousands of accounts that were
funded so far,” Iwry explains. …
But the myRA, he argues, was a long-term investment in national saving, a starter account
designed to play out over many years and be used for a variety of purposes—not to be judged
prematurely and terminated based on the first year’s activity.
One of those purposes was to support the aforementioned federal or state-based auto IRAs.
At the time, California was about to enact its auto IRA program; the only hold-up was the need
to reach agreement on the type of default investment in which participants would be placed.
Rather than delay the program entirely while debating the issue, the California legislation was
amended to specify that the everyone who didn’t opt out would be invested in “United States
Treasuries, myRAs, or similar investments” at least temporarily for up to the first three years of
the program.
So, a major purpose of the myRA, by 2016, was to serve as a key element of the auto-IRA
programs in Oregon, Illinois and California, as requested by those states and probably other
states in the future (the auto-IRA was also explicitly required to be offered as an option on state
“marketplaces” under legislation signed into law in Washington and New Jersey).
“In the first year of the myRA, 2016, our focus at Treasury was mainly on ensuring we had the
capacity to meet the very large expected demand from California, Oregon, and Illinois,” Iwry
explains. “Far from the supposed low numbers, California officials, in accordance with their
legislation, made clear to Treasury that they were interested in using the myRA as their
temporary placeholder default investment, or sole investment, for up to three years to auto-enroll
6.8 million workers.” …
However, in the spring of 2017, the Trump White House and/or Treasury realized (or were told)
that continuing to make the myRA available to the states’ auto IRA programs would be
inconsistent with their intent to sign legislation hostile to those programs.
So the Trump Treasury then informed California—as well as Oregon and Illinois—that it was
pulling the plug “on the states’ plans to promote saving by millions of workings families through
myRAs.”
Shortly after thwarting the states, Treasury announced that the myRA’s expected takeup was
small and therefore not worth the cost of continuing.
“That’s the real story of the premature demise of the myRA,” Iwry concludes. “It was not the
flop they made it out to be. Take-up among those just signing up for it on their own was starting
slow, but the key point was that, but for Treasury’s intervention, millions of myRAs were about
to be deployed to help working families start saving in California and other states.”
More background info: https://401kspecialistmag.com/myra-makes-a-comeback-no-seriously/