Deck 18: Economics of Retirement and Healthcare

Question 1

Which of the following statements about Social Security is true?

A) The Social Security program offers retirees retirement benefits for up to 20 years after retirement.
B) Social Security is funded with income tax revenues.
C) Social Security requires workers to contribute to an account that is held in their name at the Treasury and invested in government and highly rated private sector bonds.
D) Social Security transfers income from current workers to current retirees.

Answer 1

D
Explanation: Social Security does not invest the funds taxed away from current workers, but transfers that money to current retirees for as long as the retirees live.

Question 2

Social Security requires workers to contribute to an account that is held in their name at the Treasury and invested in government and highly rated private sector bonds.

Answer 2

False
Explanation: Social Security taxes are used to pay the benefits of already-retired workers, with the implicit promise that future workers will pay for the benefits of the current generation when the current generation retires. Social Security funds are generally transferred, not invested.

Question 3

The old-age dependency ratio is the ratio of the size of the 65 and older population to the size of the working-age population.

Answer 3

True
Explanation: The old-age dependency ratio is the ratio of the size of the 65 and older population to the size of the working-age population.

Question 4

The amount of money paid to a retiree from a defined contribution plan depends on how well investments perform.

Question 5

Which of the following statements about Social Security is FALSE?

A) Workers with low incomes will get back a higher percentage of their lifetime average income than higher-income workers.
B) Social Security benefits rise along with inflation.
C) Employers do not make any contribution to Social Security for employees unless the employer is the government, a government agency, or a government contractor.
D) Social Security is the single largest source of income for American adults aged 65 and over.

Question 6

What is expected to happen to old-age dependency ratios in the United States?

A) As the population ages, the old-age dependency ratio is expected to rise.
B) The old-age dependency ratio is expected to fall as workers become more productive with better technology in the future.
C) The old-age dependency ratio is expected to stay about the same over the next half-century, as increases in technology and the aging of the population counterbalance one another.
D) Since we do not know when people will retire and how long they will live, it is impossible to estimate what will happen to the old-age dependency ratio over time.

Question 7

A 401(k)plan is a type of defined benefit plan.

Question 8

The life cycle approach to healthcare puts people in the position of projecting how many resources they will need to pay for healthcare when they are old,a problem called the healthcare poverty problem.

Question 9

How is a 401(k)plan taxed?

A) A 401(k) plan is taxed when workers withdraw money from the account to pay for retirement expenses.
B) 401(k) contributions are taxed when workers make their contributions, and grow tax-free until retirement.
C) Contributions to a 401(k) plan are taxed at the time the contribution is made, and again when the money is withdrawn from the account after retirement.
D) A 401(k) plan is not taxed at all.

Question 10

Which of the following is NOT among the proposals for reducing the Social Security financing gap?

A) Raising Social Security payroll taxes.
B) Reducing benefits.
C) Mandating larger-than-agreed-upon payments from company pension plans.
D) Privatizing the system.

Question 11

The adverse selection problem in healthcare occurs because people who are healthier are less likely to buy health insurance because they are less likely to need it.

Question 12

An employer retirement plan that provides a predetermined monthly amount of income when you retire is called a

A) defined contribution plan.
B) 401(k) plan.
C) defined benefit plan.
D) Social Security plan.

Question 13

While the retirement poverty problem occurs because poor people often cannot save much for retirement,the retirement uncertainty problem occurs because people are not certain if they will live long enough to retire.

Question 14

Between 1995 and 2010,the consumer price index for medical care grew more slowly than the rest of the prices in the economy.

Question 15

People who are the most at risk for health problems are the most likely to sign up for health insurance.Health insurance premiums rise to cover the increased costs of these people,whereupon the less at risk drop their health insurance coverage,worsening the problem.This problem is called the

A) adverse selection problem.
B) healthcare poverty problem.
C) healthcare uncertainty problem.
D) moral hazard problem.

Question 16

According to the life cycle model discussed in the textbook,people tend to borrow while young,pay off debt and build wealth in their middle age,and live off savings during their retirement.

Question 17

Which of the following best describes the adverse selection problem in healthcare?

A) People don't know how much they will need to pay for healthcare in old age, adding to the risks of old age.
B) The poor are exposed to medical disasters because they cannot afford to pay for insurance.
C) The people who are selected for jobs with health insurance benefits are often the people who least need the health insurance.
D) Healthier people are less likely to buy health insurance because they are less likely to need it, meaning that a health insurance plan is likely to have the sickest people in it, driving up premiums.

Question 18

Economists talk about a four-legged stool of retirement income,which includes all of the following sources of income EXCEPT

A) individual savings.
B) funding provided by charitable organizations.
C) employer retirement plans.
D) Social Security benefits.

Question 19

A defined benefit plan provides retirees income that varies with the market interest rate but continues for a defined number of years.

Question 20

The life cycle theory of retirement breaks up an individual's working life into these three periods:

A) youth, middle age, and old age.
B) training, working, and retiring.
C) education, work, and enjoyment.
D) not working, working, and not working.

Question 21

Which of the following persons would be covered by Social Security?

A) A 72-year-old who is retired but still working part-time.
B) A 40-year-old who has lost his job and is temporarily unemployed.
C) The 35-year-old married daughter of a Social Security recipient who died last year at age 69.
D) A 60-year-old who took early retirement from his employer.

Question 22

Suppose the court system begins to make it easier for plaintiffs to win large payments from doctors and other medical professionals who are accused of malpractice.What result would you expect?

A) Doctors would order more diagnostic tests and treatment procedures even when the costs of those procedures exceed the benefits to the patient.
B) The cost of medical care would fall because doctors would avoid expensive tests and treatments.
C) Claims on medical insurance plans would probably fall.
D) More people would seek training to become medical professionals because they would be able to make more money ordering tests and treatment procedures.

Question 23

In most defined contribution retirement plans,employees have a choice about whether or not to participate.Which of the following statements about worker participation is true?

A) Current U.S. law says that workers must be automatically enrolled in employer retirement plans.
B) Full-time workers are less likely to participate than part-time workers because part-time workers need the retirement income more.
C) Workers are more likely to participate if they are automatically enrolled and are permitted to opt out, rather than not enrolled and permitted to opt in.
D) Workers are more likely to be part of a defined benefit plan than a defined contribution plan.

Question 24

Which of the following is a recent trend observed in retirement plans in the United States?

A) Participation in retirement plans is declining as workers begin to rely more on Social Security.
B) Many companies have been switching from defined benefit plans to defined contribution plans.
C) More Americans are opting out of Social Security because of the low rates of return compared to private alternatives.
D) More employer retirement plans are beginning to switch from defined contribution plans to defined benefit plans.

Question 25

Advantages of a single-payer system,in which the government pays for all medical expenses for everyone,would eliminate all of the following problems EXCEPT the

A) poverty problem.
B) uncertainty problem.
C) third-party payer problem.
D) adverse selection problem.

Question 26

If your retirement income from your employer's retirement plan depends on the performance of the pretax investments that you and your employer have made over time,then your employer's plan is a

A) defined benefit plan.
B) defined contribution plan.
C) Social Security plan.
D) calculated retirement plan.

Question 27

The Social Security payroll tax is ____ on the employee,and ___ on the employer,on all earned income up to a cap,which is adjusted for inflation each year.

A) 7.65 percent; 7.65 percent
B) 0 percent; 15.3 percent
C) 15.3 percent; 0 percent
D) 6.2 percent; 6.2 percent

Question 28

What type of system puts the greatest risk of market fluctuations on retired employees?

A) A defined contribution plan.
B) A defined benefit plan.
C) The Social Security system.
D) The risk of market fluctuations is the same for all retirement plans.

Question 29

All of the following have contributed to rising medical care costs EXCEPT

A) rapid technological progress.
B) the aging of the population.
C) third parties paying for most medical expenses.
D) increasing occurrences of expensive communicable disease.

Question 30

Social Security taxes are currently invested in

A) a mix of conservative stocks and bonds.
B) U.S. Treasury bonds.
C) gold.
D) money market accounts and certificates of deposit.

Question 31

In 1980,__________ of full-time employees in large and midsize private firms participated in __________ plans.

A) 84 percent; defined benefit
B) 84 percent; defined contribution
C) 16 percent; Social Security
D) 16 percent; 401(k)

Question 32

Third-party payers for medical care include all of the following EXCEPT

A) Medicare.
B) Medicaid.
C) employer-provided medical insurance.
D) payments from the patient's savings.

Question 33

The retirement poverty problem is that

A) many retired people live in poverty.
B) without Social Security payments, almost all seniors would be in poverty.
C) many workers are too poor to save for retirement.
D) retirement makes people feel poorer because they are not engaged in productive work.

Question 34

Which of the following statements about health insurance is true?

A) For employer-provided health insurance plans, the employee generally pays the bulk of the costs, while the employer covers 10 or 20 percent of the overall insurance expenses.
B) Low-income workers are less likely than high-income workers to be covered by an employer health plan.
C) Medicaid is a government program set up to cover the medical expenses of older citizens.
D) Medicare is a government program set up to cover the medical expenses of low-income families and individuals with disabilities.

Question 35

Which of the following statements about medical care costs is true?

A) In the last decade, medical care costs have risen more slowly than the overall rate of inflation.
B) Medical care costs per person have risen faster than income per person.
C) Since many medical expenses are paid for by a third party, the third-party payers have been able to force large reductions in medical expenses, compared to an out-of-pocket system.
D) In the United States, workers are taxed on company-funded medical care expenses, while in Europe workers are not taxed on those expenses.

Question 36

The "individual mandate" included in President Obama's health insurance reform bill was designed to address which problem?

A) The moral hazard problem.
B) The healthcare uncertainty problem.
C) The healthcare poverty problem.
D) The adverse selection problem.

Question 37

President Obama's health insurance reform bill attempted to solve the healthcare poverty problem by

A) creating a single-payer system in which the government pays for all medical care.
B) offering tax credits and subsidies to help low-income households afford insurance.
C) increasing the income thresholds for Medicaid eligibility.
D) requiring all employers to offer free healthcare to their employees.

Question 38

In 2009,the largest single source of funds for adults 65 and older was

A) earnings from work.
B) Social Security payments.
C) public pensions.
D) income from assets.

Question 39

Which of the following statements about medical care spending is true?

A) Over the past 20 years, medical expenses among the elderly have increased faster than medical expenses among the middle-aged and young.
B) Medical expenses among the elderly tend to be higher than medical expenses among the middle-aged.
C) Medical care is an inferior good because people spend less on medical care as their income rises.
D) Most medical care expenses are paid out-of-pocket, by the patient, rather than by insurance companies or the government.

Question 40

Which of the following best describes the group of Americans covered by the Social Security program?

A) Those who are disabled, elderly, or dependents of a deceased Social Security participant.
B) Those who are over the age of 65 and retired.
C) Those who are over the age of 65 and unable to work due to a disability, or over the age of 72 with or without a disability.
D) Those who are unemployed and over the age of 55, and everyone over the age of 65.

Question 41

Ida May Fuller was the first

A) director of the Social Security Administration.
B) person enrolled in a 401(k) retirement plan.
C) recipient of a Social Security check.
D) person issued a Social Security number.

Question 42

Which of the following countries spends the most per capita on healthcare?

A) The United States.
B) Canada.
C) Germany.
D) China.

Question 43

What is the difference between defined benefit and defined contribution retirement plans? Why are employers switching to defined contribution plans?

Question 44

Which group in the United States tends to spend the largest amount of money per person on healthcare?

A) Children and teens from infancy to 18.
B) Young and middle-aged people from 19 to 64.
C) Elderly people from 65 and up.
D) All groups spend about the same amount of money per person.

Question 45

The old-age dependency ratio is found by

A) dividing the number of people of working age by the number of retirees.
B) dividing the number of older people by the number of people in the entire population.
C) multiplying the number of older people by the percentage in that group who have no retirement savings.
D) dividing the number of older people by the number of people of working age.

Question 46

Which of the following would tend to lower overall healthcare expenses?

A) A reduction in the incidence of third-party payers.
B) An increase in national income.
C) Higher technology in medical care.
D) An increase in court awards of damages in malpractice lawsuits.

Question 47

Describe the basic financial life cycle.How does the life cycle change with Social Security in the picture?

Question 48

How does the tax code contribute to rising healthcare costs?

A) Since health insurance benefits are untaxed, workers have an incentive to receive more of their compensation in the form of health insurance benefits.
B) Since services are not subject to state sales taxes, households tend to spend more of their money on healthcare services than on other goods.
C) Since healthcare purchases are subject to such high taxes, total spending on healthcare (including taxes) is quite high.
D) Since the tax code provides exemptions for research and development, it provides an incentive for businesses to develop high-tech and expensive new treatments.

Question 49

With respect to healthcare decisions,which party is the "third" party?

A) The doctor.
B) The patient.
C) The health insurance company.
D) The federal regulator.

Question 50

Economists who are cautious about government intervention in healthcare markets are probably worried about each of the following EXCEPT

A) the incentive problem.
B) rent-seeking behavior.
C) lack of innovation.
D) excessive flexibility.

Question 51

In 2010,if you earned $201,000 in income,you would pay approximately __________ in taxes to fund Social Security; if you earned $1,020,000 in income,you would pay approximately __________ in taxes to fund Social Security.

A) $12,460; $63,240
B) $6,620; $6,620
C) $5,840; $56,620
D) $94,200; $913,200

Question 52

Which of the following groups is most likely to participate in an employer-sponsored retirement plan?

A) Low-wage workers.
B) Workers with defined benefit plans in small workplaces.
C) High-wage workers in part-time jobs.
D) High-wage workers in full-time jobs.

Question 53

The name "401(k)" for some retirement plans is a reference to

A) the trademarked name of the first defined contribution retirement plan.
B) the section of the tax code that defines such plans.
C) a specific cell in the spreadsheet that a government official used to create these retirement plans.
D) a room number inside the Social Security Administration headquarters.

Question 54

What problems with healthcare did President Obama attempt to address with the health insurance reform bill he signed in 2010,and how were those problems addressed?

Question 55

Describe the problem demographic change presents for Social Security.

Question 56

List the four possible responses to the Social Security financing gap.

Question 57

The healthcare of low-income children,their parents,and individuals with disabilities is covered (though not always completely)through

A) Medicare.
B) Medicaid.
C) Social Security.
D) employer health insurance plans.

Question 58

Which of the following would increase the old-age dependency ratio over the next 25 years?

A) An increase in the birthrate.
B) An increase in the number of young immigrants.
C) Medical advances that extend the lives of people over the age of 50.
D) A reduction in Social Security taxes.

Question 59

Which of the following is a way in which Social Security benefits could be cut?

A) An increase in the rate of inflation.
B) A higher retirement age.
C) A smaller penalty for early retirement.
D) An increase in the payroll tax rate.

Question 60

People in which age group are the least likely to have some form of health insurance coverage?

A) Under 18.
B) 18-34 years old.
C) 35-64 years old.
D) 65 and older.