Deck 8: Social Security and Social Insurance 

Question 1

The Social Security pension system is a fully funded retirement plan.

Answer 1

False

Question 2

The bequest effect of Social Security encourages workers to save less.

Answer 2

False

Question 3

In the year prior to retirement, a worker earned $20,000 and paid $5,000 in taxes on those earnings.His annual Social Security pension is $10,000 per year.It then follows that his net replacement rate is 50 percent.

Answer 3

False

Question 4

Workers who quit their jobs are eligible for unemployment insurance benefits in the United States.

Question 5

By 2060, the expected percentage of the U.S.population that is considered elderly will be less than 20%.

Question 6

Reducing the replacement rate will have no effect on the tax rate necessary to finance pensions under a pay-as-you-go, tax-financed pension system.

Question 7

Social Security pension benefits are transfers from workers to retirees.

Question 8

The Social Security retirement system:

A)is a fully funded pension system.
B)is a tax-financed system that pays benefits from taxes that are invested to return principal and interest to workers when they retire.
C)is a tax-financed retirement system that finances pensions by taxing workers each year and transferring the bulk of revenues obtained directly to retirees.
D)does not use taxes on workers to pay pensions to retirees.

Question 9

The availability of Social Security pensions to workers over normal retirement age results in an income effect unfavorable to work but no substitution effect.

Question 10

The gross replacement rate:

A)measures a worker's monthly retirement benefit divided by monthly earnings before taxes in the year prior to retirement.
B)measures a worker's monthly retirement benefit divided by monthly earnings after taxes in the year prior to retirement.
C)is an increasing function of gross monthly earnings prior to retirement.
D)is independent of gross monthly earnings prior to retirement.

Question 11

The normal retirement age for Social Security old-age pensions is 67 for people born in the United States in 1960 or later.

Question 12

Retired workers between the ages of 62 and their normal retirement age were subject to an "earnings test" that reduced their pension by $1 for each $2 of earnings after a certain minimum level of earnings.

Question 13

The asset-substitution effect of Social Security pensions discourages saving.

Question 14

Workers in the United States can retire under Social Security at age 62 with lower pensions than they would receive at their normal retirement age.

Question 15

Social Security pensions are financed by voluntary contributions by workers.

Question 16

The gross replacement rate for Social Security pensions is the same for all workers independent of their preretirement earnings.

Question 17

On average, the elderly are less likely to be poor when compared to the rest of the U.S.population.

Question 18

The gross replacement rate measures the ratio of taxes paid per year by workers to their annual Social Security pension when they retire.

Question 19

Social Security was created in 1965.

Question 20

The annual growth in wages subject to Social Security taxes is 3 percent.Given the payroll tax rate, the growth in funds available to pay pension benefits is also 3 percent.

Question 21

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

A)exemplified by the current U.S.Social Security system.
B)exemplified by the current Chilean Social Security system.
C)designed to have retirees set aside a contribution specifically for themselves during their earlier working life.
D)both (a) and (b) are correct.

Question 22

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

A)A decrease in the federal debt outstanding
B)An increase in the federal debt outstanding
C)A decrease in the portion share of federal government expenditures that must be allocated to interest in the future
D)An increase in national saving

Question 23

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?

A)The worker's gross replacement rate is 50 percent.
B)The worker's net replacement rate is 50 percent.
C)The worker's net replacement rate is 38 percent.
D)The worker's net replacement rate is 75 percent.

Question 24

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?

Question 25

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:

A)the number of retirees per worker will increase.
B)the number of retirees per worker will decrease.
C)wages are expected to decline.
D)the size of the workforce is expected to increase.

Question 26

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

A)About 53%
B)About 63%
C)About 73%
D)About 83%

Question 27

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:

A)62.
B)65.
C)66.
D)67.

Question 28

Social Security tax rates can be reduced if:

A)taxable wages decline.
B)the retirement age is lowered.
C)the retirement age is raised.
D)the workforce decreases in size.

Question 29

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:

A)increases in payroll tax rates.
B)use of other taxes beside the payroll tax to pay Social Security benefits.
C)an increase in the number of workers paying Social Security taxes.
D)Both (a) and (c) are correct.

Question 30

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

A)A federal budget surplus
B)A federal budget deficit
C)A recession
D)Both (b) and (c) are correct.

Question 31

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

A)1927.
B)1935.
C)1947.
D)1965.

Question 32

The earnings test for retirees:

A)increases their incentive to work.
B)is applied only to retirees below normal retirement age.
C)reduces pension benefits by $1 for each $2 of earnings for retirees under full retirement age.
D)both (b) and (c) are correct.

Question 33

A retiree subject to the earnings test under Social Security:

A)can earn as much as he or she chooses without losing Social Security pension benefits.
B)has his or her Social Security pension benefits reduced by one dollar for each dollar of labor earnings.
C)has his or her Social Security pension benefits reduced immediately by one dollar for each three dollars of labor earnings.
D)has his or her Social Security pension benefits reduced by one dollar for each two dollars of earnings after a certain minimum amount per year until they reach their full retirement age.

Question 34

Unemployment insurance benefits are:

A)financed by payroll taxes levied on workers.
B)financed by payroll taxes levied on employers.
C)both (a) and (b) are correct.
D)financed by sales taxes.

Question 35

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

A)save more for retirement.
B)save less for retirement.
C)save absolutely nothing for retirement.
D)work more.

Question 36

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

A)Pensions received by retired workers are based entirely on their contributions to the Social Security pension trust fund and the investment return on that fund.
B)Pensions received by married retirees with dependents are greater than that received by those without dependents.
C)Gross replacement rates are inversely related to preretirement earnings.
D)Both (b) and (c) are correct.

Question 37

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

A)save less for retirement.
B)save more for retirement.
C)reduce savings for retirement to zero.
D)work more after retirement.

Question 38

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.

Question 39

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

A)An increase in replacement rates
B)A decrease in the retirement age
C)An increase in the size of the workforce
D)An increase in the number of retirees

Question 40

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

A)The replacement rate is 40 percent.
B)The replacement rate is 2.5.
C)The dependency ratio is 0.4.
D)The dependency ratio is 2.5.