Question 1

Social Security, officially known as Old Age and Survivors Insurance (OASI),
A) collects funds from current workers and invests them in order to provide these workers with a stream of income during the retirement phase of life.
B) is based on the same principles as private insurance programs.
C) is an intergenerational income transfer program.
D) is a voluntary savings program run by the government.

Accepted Answer

Social Security is designed as an intergenerational income transfer program where current workers contribute a portion of their earnings through payroll taxes and those funds are used to support benefits for current retirees, as well as surviving family members of deceased workers. It is not a voluntary savings program or based on the same principles as private insurance programs. Additionally, Social Security does invest some funds, but the primary objective is to provide a guaranteed source of income for retirees rather than generating investment returns.

Question 2

The current Social Security system works to the disadvantage of blacks primarily because the
A) average annual earnings of blacks are generally lower than other groups.
B) average life expectancy of blacks is generally less than other groups.
C) Social Security tax rates imposed on blacks are higher than those imposed on other groups.
D) Social Security benefit formula is disadvantageous to blacks.

Accepted Answer

The answer of The current Social Security system works to...

Question 3

Given the current tax rate structure and promised benefit levels, persons that are currently 40 years old or younger can expect to earn approximately what real rate of return on their Social Security contributions?
A) 0 percent
B) 2 percent
C) 10 to 12 percent
D) 15 to 20 percent

Accepted Answer

The answer of Given the current tax rate structure and...

Question 4

When the Social Security system begins running a deficit during the years following 2018, the bonds in the trust fund will be drawn down. The funds to redeem these bonds will have to come from
A) higher taxes, spending reductions in other programs, or additional government borrowing.
B) the surplus funds deposited in governmental banking accounts.
C) equity capital being liquidated.
D) the sale of private equities and securities that the government has been purchasing with the funds.

Accepted Answer

When the Social Security system begins running a deficit, the bonds in the trust fund will have to be redeemed. Funds to redeem these bonds will have to come from higher taxes, spending reductions in other programs, or additional government borrowing.

Question 5

The Social Security program is primarily a
A) compulsory retirement income program set up on sound insurance principles.
B) forced-savings program where workers save during their working years and receive the principal and interest on these savings at retirement.
C) program designed to tax current workers in order to provide benefits for current retirees.
D) voluntary savings program run by the government.

Accepted Answer

The Social Security program is primarily funded through payroll taxes collected from current workers, and these funds are used to provide benefits to current retirees. It is not a forced-savings program because individuals do not have the option of choosing how their payroll taxes are invested, and the program does not guarantee a specific rate of return. While the program is mandatory for most workers, it is not technically insurance because there is no way to opt out or choose different levels of coverage. The program is run by the government and is not voluntary.

Question 6

Will a large quantity of bonds held in the Social Security Trust Fund make it easier to deal with the retirement of the baby boomers?
A) Yes; the federal government will be able to redeem these bonds in the future without raising taxes or increasing its borrowing.
B) Yes; the interest on these bonds will provide the federal government with a stream of net revenue in the future.
C) Yes, but only if the federal government holds these bonds until they mature.
D) No; the federal government cannot redeem the bonds without raising revenues for their redemption from other sources.

Accepted Answer

The answer of Will a large quantity of bonds held...

Question 7

When the current Social Security surpluses end and the bonds in the trust funds are reduced in order to make payments to retirees, the financing for the redemption of the trust fund bonds will come from
A) higher taxes or more government borrowing.
B) the surplus funds deposited in government banking accounts.
C) equity capital being liquidated.
D) the sale of private equities and securities that the government has been purchasing with the funds.

Accepted Answer

Once the current Social Security surpluses end and the trust fund bonds are being redeemed, the financing for the redemption will have to come from either higher taxes or more government borrowing. This is because the trust fund bonds were essentially loans made by the Social Security system to the federal government, and when those loans come due, the government will have to pay them back. This can be done through increased revenue (higher taxes) or by borrowing more funds. Neither option is ideal, as they would both have implications for the overall economy and taxpayers.

Question 8

As the baby boom generation, born during 1946 through 1960, reaches retirement age during the 2011 through 2030 period, the number of workers per Social Security beneficiary is expected to
A) increase to five.
B) remain constant at approximately seven.
C) decline to approximately five.
D) decline to approximately two.

Accepted Answer

As the baby boom generation retires, there will be fewer workers supporting a larger number of beneficiaries. This will cause the number of workers per Social Security beneficiary to decline from the current ratio of approximately 2.8 to around 2 by 2030, according to projections from the Social Security Administration.

Question 9

When the Social Security surplus is used to cover the current operating expenses of the federal government, it will
A) make it easier for future taxpayers to provide promised Social Security benefits to baby boomers.
B) reduce the outstanding debt of the federal government.
C) make it possible for Congress and the president to spend more without raising current taxes or borrowing from the general public.
D) increase the credibility of the Social Security benefits promised to future retirees.

Accepted Answer

When the Social Security surplus is used to cover the current operating expenses of the federal government, it allows Congress and the president to spend more without raising current taxes or borrowing from the general public. This can lead to an increase in government spending and potentially contribute to a larger national debt. It does not directly impact the ability to provide promised Social Security benefits to future retirees or reduce the outstanding debt of the federal government.

Question 10

The Social Security system is currently generating tax revenues that exceed the benefits paid to recipients. This surplus is
A) being invested in foreign bonds, which will provide Americans with a source of income when the baby boom generation retires.
B) separated from other government revenue so politicians will not spend the money during the current period.
C) being channeled into earmarked private savings accounts.
D) invested in government bonds, the redemption of which will require an increase in taxes (or additional Treasury borrowing).

Accepted Answer

The answer of The Social Security system is currently generating...

Question 11

Which of the following is true?
A) All of the current revenues flowing into the Social Security system are needed for benefit payments to current retirees.
B) If the Social Security surplus was used to pay down the privately held federal debt, this would reduce future taxes and, thereby, make it easier to deal with the retirement of the baby boomers.
C) During the 1980s and 1990s, most of the social security surplus was used to reduce the national debt.
D) When the Social Security surplus is used to cover the current operating expenses of the federal government, it will make it easier for future taxpayers to provide promised Social Security benefits to baby boomers.

Accepted Answer

If the Social Security surplus was used to pay down the privately held federal debt, this would reduce future taxes and, thereby, make it easier to deal with the retirement of the baby boomers. This is because the reduction in federal debt would lead to lower interest payments on the debt, freeing up resources that could be used to support Social Security benefits. Option A is incorrect because the current revenues flowing into the Social Security system are not sufficient to cover all benefit payments, and the Social Security trust fund is expected to be depleted by 2035. Option C is incorrect because most of the surplus was used to purchase US Treasury bonds, which added to the national debt. Option D is incorrect because diverting the Social Security surplus to cover current operating expenses does not address the underlying financial challenges facing the program and could jeopardize the long-term solvency of the system.

Question 12

The Social Security system of the United States is based on the pay-as-you-go principle. This indicates that funding of the benefits paid to current retirees comes primarily from
A) the income generated by the system's ownership of stock.
B) the tax payments of current workers.
C) the funds that current retirees paid into their personal savings accounts during their working years.
D) money created by the Federal Reserve system.

Accepted Answer

The Social Security system is funded by the tax payments of current workers. These taxes are used to pay benefits to current retirees. The pay-as-you-go principle means that current workers are essentially paying for the benefits of current retirees, and when they retire, they will be supported by the payments of future workers. This system relies on the assumption that there will always be a sufficient number of workers contributing to the system to fund the benefits of retirees.

Question 13

The current surplus of the Social Security system is expected to become a deficit sometime around 2018 because the
A) payroll tax rate is scheduled to decline at that time.
B) number of workers relative to the number of Social Security recipients will decline as the baby boom generation moves into the retirement phase of life.
C) stock market is not expected to perform nearly as well during the next two decades as was the case during the 1980s and 1990s.
D) growth rate of the U.S. economy is expected to slow during the next two decades.

Accepted Answer

The number of workers paying into the Social Security system will decrease as the baby boom generation retires, while the number of retired individuals drawing from the system will increase, causing a deficit in the system. The other options do not directly relate to the surplus or deficit of the Social Security system.

Question 14

The net value to the federal government of the bonds currently held in the Social Security Trust Fund is
A) approximately $1 trillion.
B) now approaching $2 trillion.
C) greater than $2.5 trillion.
D) zero, because the federal government is both the payee and recipient of the interest and principal represented by these bonds.

Accepted Answer

The answer of The net value to the federal government...

Question 15

Which of the following best explains why the Social Security system will face financial difficulties in the future?
A) Too much Social Security revenue was invested in the private sector rather than in government bonds.
B) In the next two decades, the number of workers paying into the system will decline sharply relative to the number of retirees collecting benefits.
C) The federal government does not pay interest on the money it borrows from the Social Security system.
D) The funds in the Social Security trust fund were invested in high-risk ventures that failed to pay off.

Accepted Answer

The Social Security system will face financial difficulties because in the next two decades, the number of workers paying into the system will decline sharply relative to the number of retirees collecting benefits. This will strain the system's finances and make it difficult to pay out benefits.

Question 16

In 2010, the number of workers per Social Security beneficiary was approximately ____; by the year 2030, this figure is expected to ____.
A) 5; increase to approximately 8
B) 2.9; fall to approximately 2.1
C) 2.2; increase to approximately 3.2
D) 8; fall to approximately 5

Accepted Answer

In 2010, the number of workers per Social Security beneficiary was approximately 2.9. This figure is expected to fall to approximately 2.1 by the year 2030, due to the aging of the population and the smaller number of younger workers entering the workforce to support each retiree receiving Social Security benefits.

Question 17

The current Social Security System surplus of revenues relative to expenditures is used to purchase
A) U.S. Treasury bonds.
B) bonds issued by domestic corporations.
C) U.S. stock.
D) U.S. and foreign stock.

Accepted Answer

The Social Security System surplus of revenues relative to expenditures is invested mainly in U.S. Treasury bonds. These bonds are considered a safe investment and provide a steady source of income for the Social Security System. Additionally, investments in U.S. Treasury bonds help the government finance its deficits. This investment strategy helps to ensure that the Social Security System can meet future obligations to beneficiaries.

Question 18

When the Social Security system enters its deficit years and the bonds held in the trust fund are drawn down,
A) overall taxes will be reduced as the trust funds are used to pay benefits to retirees.
B) the payroll taxes used to finance Social Security benefits can be reduced because the trust funds will be sufficient to pay the retirement benefits of the baby boom generation.
C) taxes will have to be raised (or additional funds will have to be borrowed) in order to redeem the bonds held in the trust fund.
D) income taxes will have to be reduced in order to keep the revenues and expenditures of the Social Security system in balance.

Accepted Answer

When the Social Security system enters its deficit years and the bonds held in the trust fund are drawn down, taxes will have to be raised (or additional funds will have to be borrowed) in order to redeem the bonds held in the trust fund. The trust fund is just a collection of IOUs from the government, and those IOUs will have to be repaid with interest, requiring additional funding.

Question 19

The Social Security retirement program is financed by a 10.6 percent payroll tax that applies to earnings up to an income cutoff that is adjusted upward annually by the growth rate of nominal wages. As of 2011, the income cutoff was
A) $15,000.
B) $32,700.
C) $106,800.
D) $250,000.

Accepted Answer

As of 2011, the income cutoff for the Social Security payroll tax was $106,800. This means that workers pay a 10.6 percent tax on earnings up to this amount, but no tax on any additional earnings beyond this cutoff.

Question 20

Demographic conditions
A) were much less favorable for the Social Security system in 1950 than is currently the case.
B) are currently unfavorable because the number of retirees is growing rapidly as the result of the high birth rate in the United States during 1930-1945.
C) will be less favorable for the Social Security system once the baby boom generation begins to retire around 2011.
D) don't affect the financial status of the Social Security system because it is based on the same principles as private insurance programs.

Accepted Answer

The question suggests that the demographic conditions will become less favorable for the social security system once the baby boom generation begins to retire around 2011. This means that the number of retirees will increase substantially, and there will be fewer workers per retiree. This puts a strain on the financial stability of the system. Option A is incorrect because it states that the demographic conditions were less favorable in 1950, which is not related to the current conditions. Option B is misleading because it suggests that the current conditions are unfavorable, but it doesn't explain why they will become more unfavorable in the future. Option D is also incorrect because the financial status of the Social Security system is affected by demographic conditions, as it is based on the principle of intergenerational transfer of funds.

Quiz 16: Applying the Basics: Special Topics in Economics

Social Security, officially known as Old Age and Survivors Insurance (OASI) ,

The current Social Security system works to the disadvantage of blacks primarily because the

Given the current tax rate structure and promised benefit levels, persons that are currently 40 years old or younger can expect to earn approximately what real rate of return on their Social Security contributions?

When the Social Security system begins running a deficit during the years following 2018, the bonds in the trust fund will be drawn down. The funds to redeem these bonds will have to come from

The Social Security program is primarily a

Will a large quantity of bonds held in the Social Security Trust Fund make it easier to deal with the retirement of the baby boomers?

When the current Social Security surpluses end and the bonds in the trust funds are reduced in order to make payments to retirees, the financing for the redemption of the trust fund bonds will come from

As the baby boom generation, born during 1946 through 1960, reaches retirement age during the 2011 through 2030 period, the number of workers per Social Security beneficiary is expected to

When the Social Security surplus is used to cover the current operating expenses of the federal government, it will

The Social Security system is currently generating tax revenues that exceed the benefits paid to recipients. This surplus is

Which of the following is true?

The Social Security system of the United States is based on the pay-as-you-go principle. This indicates that funding of the benefits paid to current retirees comes primarily from

The current surplus of the Social Security system is expected to become a deficit sometime around 2018 because the

The net value to the federal government of the bonds currently held in the Social Security Trust Fund is

Which of the following best explains why the Social Security system will face financial difficulties in the future?

In 2010, the number of workers per Social Security beneficiary was approximately ; by the year 2030, this figure is expected to .

The current Social Security System surplus of revenues relative to expenditures is used to purchase

When the Social Security system enters its deficit years and the bonds held in the trust fund are drawn down,

The Social Security retirement program is financed by a 10.6 percent payroll tax that applies to earnings up to an income cutoff that is adjusted upward annually by the growth rate of nominal wages. As of 2011, the income cutoff was

Demographic conditions