Question 1

A pay-as-you-go Social Security retirement system is:

Accepted Answer

The current U.S. Social Security system is an example of a pay-as-you-go system, where current workers' contributions fund the benefits of current retirees, rather than individuals saving specifically for their own retirement.

Question 2

Which of the following is a consequence of a growing federal budget deficit in the United States?

Accepted Answer

A growing federal budget deficit leads to an increase in the federal debt outstanding, as the government borrows more money to cover the shortfall in revenues. The opposite effect would occur if the budget deficit were to decrease, as the government would need to borrow less and could use more of its revenue to pay down existing debt. Options A, C and D are not consequences of a growing federal budget deficit.

Question 3

A worker earns $2,000 per month before taxes.He pays $140 per month payroll tax on those wages.In addition, the income taxes on those wages are $360 per month.On retirement, the worker receives a Social Security pension of $750 per month.Which of the following statements is true?

Accepted Answer

The worker's net replacement rate is calculated by dividing the pension received by the net income (after taxes) while working. The net income is $2,000 - $140 (payroll tax) - $360 (income tax) = $1,500. The pension is $750. So, the net replacement rate is $750 / $1,500 = 0.5 or 50 percent.

Question 4

If the Social Security retirement system were a private retirement system, it would be declared bankrupt.Explain why this is so and why the Social Security system can continue to pay benefits despite the fact that it can be considered bankrupt.Explain why the Social Security tax rate has increased so much in recent years.What measures could be taken to reduce the Social Security payroll tax rate?

Accepted Answer

The answer of If the Social Security retirement system were...

Question 5

Given the structure and level of gross replacement rates and the expected future growth of labor earnings subject to the payroll tax, the tax rates used to tax payrolls were increased in the 1980s because:

Accepted Answer

The increase in payroll tax rates in the 1980s was due to the expected increase in the number of retirees per worker. This means that there would be fewer workers contributing to the social security system while more retirees are receiving benefits, putting pressure on the system's financial sustainability. Increasing the tax rates was a way to offset the rise in costs and maintain the solvency of social security.

Question 6

Approximately, what percentage of beneficiaries of U.S.Social Security are retired workers?

Accepted Answer

About 73% of Social Security beneficiaries are retired workers, reflecting the program's primary purpose of providing retirement income.

Question 7

Unless legislation is introduced to change the normal retirement age, people born in 1960 or later will be able to retire with full Social Security benefits at age:

Accepted Answer

Unless legislation is introduced to change the normal retirement age, people born in 1960 or later will be able to retire with full Social Security benefits at age 67.

Question 8

Social Security tax rates can be reduced if:

Accepted Answer

Raising the retirement age can effectively reduce Social Security tax rates by delaying the time when individuals start receiving benefits, thus reducing the system's payout obligations and potentially allowing for lower tax rates to sustain the program.

Question 9

The growth in hourly wages over the past 50 years has averaged about 2 percent per year.However, the growth in Social Security pensions has far exceeded this 2-percent rate.The growth in tax revenue to finance Social Security benefits in excess of 2 percent per year can be accounted for by:

Accepted Answer

The growth in tax revenue to finance Social Security benefits in excess of 2 percent per year can be accounted for by both increases in payroll tax rates and an increase in the number of workers paying Social Security taxes.

Question 10

Which of the following is likely to increase the net federal debt as a share of GDP?

Accepted Answer

Both a federal budget deficit and a recession are likely to increase the net federal debt as a share of GDP. A budget deficit means the government is spending more than it earns, leading to borrowing and increased debt. A recession reduces economic activity, which can lower tax revenues and increase government spending on social services, further increasing the deficit and debt relative to GDP.

Question 11

The Social Security Act was implemented in the United States in:

Accepted Answer

The Social Security Act was implemented in 1935 as part of President Franklin D. Roosevelt's New Deal program. It aimed to provide financial assistance to the elderly, disabled, and unemployed, among others. The act established a system of Social Security taxes and benefits that continues to this day.

Question 12

The earnings test for retirees:

Accepted Answer

The earnings test for retirees is applied only to those below normal retirement age and reduces their pension benefits by $1 for each $2 of earnings. This combination of factors may increase their incentive to work by encouraging them to continue working and delaying their retirement, as they will still receive some pension benefits even if they earn income from work.

Question 13

A retiree subject to the earnings test under Social Security:

Accepted Answer

The Social Security earnings test applies to individuals who have not yet reached their full retirement age. Under this test, if the individual earns more than a certain threshold amount per year, their Social Security benefits are reduced by $1 for every $2 they earn above that threshold. This reduction continues until they reach their full retirement age, at which point they can earn unlimited amounts without any reduction in benefits.

Question 14

Unemployment insurance benefits are:

Accepted Answer

Unemployment insurance benefits are primarily financed by payroll taxes levied on employers, not workers or through sales taxes.

Question 15

The asset-substitution effect of the Social Security retirement system leads all workers to:

Accepted Answer

The asset-substitution effect of the Social Security retirement system creates a scenario where individuals expect to receive a certain amount of income from Social Security during retirement. This can lead them to save less for retirement on their own, assuming that Social Security will cover their expenses. Therefore, choice B (save less for retirement) is the correct answer.

Question 16

Which of the following is true about the Social Security pension system in the United States?

Accepted Answer

Social Security pensions in the United States are designed to provide a safety net for retirees, with benefits that consider the needs of dependents and aim to replace a higher proportion of income for lower earners. This means that married retirees with dependents can receive higher benefits than those without dependents, and the system is structured so that individuals with lower preretirement earnings have a higher percentage of their income replaced by Social Security benefits, hence the gross replacement rates are inversely related to preretirement earnings.

Question 17

The induced-retirement effect of the Social Security pension system causes workers to:

Accepted Answer

The answer of The induced-retirement effect of the Social Security...

Question 18

Labor force participation of elderly men has declined drastically since the 1940s.More than half of the men between the ages of 65 and 69 worked to support themselves in the 1940s.Currently, less than one in five men in that age bracket chooses to work.Use indifference curve analysis to show how the availability of Social Security pensions has decreased work incentive for men over the age of 65.

Accepted Answer

The answer of Labor force participation of elderly men has...

Question 19

Which of the following can decrease tax rates necessary to pay pensions for a pay-as-you-go pension system?

Accepted Answer

An increase in the size of the workforce would mean more people are contributing to the pay-as-you-go pension system, thus decreasing the tax rates necessary to pay pensions. A decrease in the retirement age or an increase in the number of retirees would increase the amount of payouts needed from the system, and an increase in replacement rates would increase the amount of money paid out to each pensioner.

Question 20

A nation has 40 million current retirees and a workforce of 100 million.Which of the following is true?

Accepted Answer

The dependency ratio is calculated as the number of dependents (in this case, retirees) divided by the number of people in the workforce. So, it's 40 million retirees / 100 million workforce = 0.4.

Quiz 8: Social Security and Social Insurance