Deck 11: Social Security

Question 1

The percentage of retired older workers has increased dramatically since the introduction of Social Security.

Answer 1

True

Question 2

A current worker may save more towards retirement so that he or she will have more to leave his or her children later.This altruistic motive is known as the

A)altruism effect.
B)bequest effect.
C)income effect.
D)savings effect.

Answer 2

bequest effect.

Question 3

Social Security pension benefits are

A)subject to income taxes for those with certain income levels.
B)non-taxable for all retirees.
C)subject to state,but not federal,income taxes.
D)subject to capital gains taxes.

Answer 3

subject to income taxes for those with certain income levels.

Question 4

Broadly speaking,Social Security redistributes incomes from high- to low- income individuals,from men to women,and from young to old.

Question 5

A fully funded plan requires

A)you to pay for your dinner as you go to the table to eat.
B)current working citizens to pay for current retired citizens.
C)no taxes since current workers pay for current retirees.
D)retirees to be paid from accounts that have accumulated with interest over their working lives.

Question 6

An actuarially fair return means

A)returns on investments are indexed to the stock market.
B)returns on investments have to be positive.
C)benefits received,on average,would be equal to the premiums paid.
D)premiums for insurance are generally paid by the government.

Question 7

Social Security benefits have played an important role in the improved economic status of the elderly over time.

Question 8

In 2007,the Social Security program had costs of

A)$30 million.
B)$20 trillion.
C)$200 billion.
D)none of the above.

Question 9

An earnings test as it relates to Social Security implies

A)benefits are reduced by some predetermined amount for those who have not reached normal retirement age.
B)the amount of money earned during the working life of an individual determines the amount of benefits received.
C)family earnings determine the amount of benefits received.
D)all of the above.

Question 10

The retirement effect is

A)when people retire later than they normally would have due to Social Security.
B)when people decide not to retire at all because of problems with Social Security.
C)when people retire earlier than they normally would have due to Social Security.
D)when people save less for their retirement due to Social Security.

Question 11

In 1970 the Social Security tax rate was ______ and had increased to ______ by 2008.

A)0.84%;0.124%
B)12.4%;8.4%
C)8.4%;12.4%
D)84%;124%

Question 12

The Social Security Administration has which program(s)to administer?

A)disability payments
B)health benefits
C)pensions
D)survivors' benefits
E)all of the above

Question 13

Social security taxes are projected to fall short of benefits starting in

A)2005.
B)2010.
C)2017.
D)2020.

Question 14

A worker can begin receiving benefits as early as age 58.

Question 15

When workers save less during their working lives due to the fact that they have been paying Social Security taxes,this is known as

A)the Social Security effect.
B)the wealth substitution effect.
C)the bequest effect.
D)the life cycle hypothesis.

Question 16

Carve-out accounts

A)applies only to workers between 65 and 69 years of age.
B)take funds away from the traditional social security system.
C)has a tax rate of no more than 16.9 percent.
D)does all of the above.

Question 17

A pay-as-you-go system means

A)you pay for your dinner as you go to the table to eat.
B)current working citizens pay for current retired citizens.
C)there is no need for taxes since current workers pay for current retirees.
D)retirees are paid from accounts that have accumulated with interest over their working lives.

Question 18

Social Security was not designed to provide insurance against outliving one's retirement.

Question 19

Asymmetric information generally implies

A)information between parties is not equal.
B)all parties are fully informed.
C)information is costless.
D)information is too costly to transmit.

Question 20

Social insurance can be justified on the grounds of

A)adverse selection.
B)decision-making costs.
C)income distribution.
D)paternalism.
E)all of the above.

Question 21

According to the Bureau of Labor Statistics,in the Federal Government,the starting salary for economists having a bachelor's degree was $35,752 in 2007.Assume that our economist will get this government job that offers a 3 percent raise annually.After 5 years of working,she quits and never works again.How much will this worker have earned over her brief working career? How much will she have paid in Social Security and Medicare taxes if the tax rate is 7.45 percent?

Question 22

Suppose in the market for labor that the labor supply curve is perfectly inelastic.This would mean that the supply curve is vertical.Furthermore,suppose that demand is normal and downward sloping.Your textbook has explained that unemployment taxes are paid entirely by the employer (demanders).Who actually pays the tax in the scenario described above?

Question 23

Average indexed monthly earnings are derived from the worker's earnings history and determine the primary insurance amount (PIA).

Question 24

Social Security is used to redistribute income.

Question 25

Suppose that the ratio of retirees to working citizens is currently 1 to 5,meaning that there are 5 working people for every retiree.Suppose that in thirty years the ratio will change to 1 to 2.If benefits remain the same,what will happen to the tax rate assuming retirees are provided benefits in a pay-as-you-go system? How much would benefits decrease if the tax rate remained the same?

Question 26

Do you feel that when you retire there will still be Social Security? If so,do you feel that benefits will be at present levels or tax rates will have increased? Finally,has this discussion changed your plans regarding your own personal savings for your retirement?

Question 27

Social Security wealth is the future value of the Social Security system.

Question 28

The Social Security Trust fund actually has no money in it and is filled with IOUs.Does this information impact your thinking regarding Social Security?

Question 29

Work disincentives in the system of Social Security have seen the number of persons in the program increase dramatically.What incentives could be put in place to reverse,or at least slow,this trend?

Question 30

A worker within the middle?income class is preparing to retire.In the year before he retired,his gross monthly earnings are $2,500.His Social Security benefits will be $1,500 per month.Before he retired,his income was subject to a tax of 30 percent.Find his before-tax and after-tax replacement rates.