Answer to Question #199100 in Macroeconomics for Joseph

Question

Eurostat projects significant increases of the old-age dependency ratio in the EU for the

years to come.

What are likely implications for EU potential output and government budgets?

Can migration into the EU help to cushion the effect; under what conditions?

Answer 1

The implications for EU potential output and government budgets will be that the potential output will decrease as government expenditure increases. The potential output will decrease because the size of labor force is low.

Migration into the EU can help to cushion these effects. This is because migration increases the supply of labor and spending within the economy. This will be possible under conditions that only productive people will migrate into EU.