Question 1

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

Accepted Answer

The Social Security system will face financial difficulties in the future 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 demographic trend will result in a reduction of available funds in the Social Security system.

Question 2

Which of the following is true?

Accepted Answer

Using the Social Security surplus to pay down the federal debt would reduce future taxes and make it easier to deal with the retirement of the baby boomers. This statement aligns with the purpose of Social Security, which is to provide a financial safety net for retirees, and suggests a responsible use of the surplus rather than diverting it for other purposes. The other options either suggest that all revenues are needed for current retirees (A), that surplus has already been used to reduce the national debt (C), or that using surplus for current expenses will make it easier to provide future benefits (D), which may not be as beneficial or sustainable in the long term.

Question 3

The payments made to the beneficiaries of the Social Security program are financed by

Accepted Answer

The payments made to beneficiaries of the Social Security program are financed by current receipts derived from the Social Security payroll tax. This tax is levied on current workers and used to pay current beneficiaries, with any excess funds held in a trust fund that can be used to cover any future deficits in the system. The other options presented (A, C, and D) are not accurate descriptions of how the Social Security program is financed.

Question 4

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

Accepted Answer

The bonds held in the Social Security trust fund represent IOUs that need to be redeemed when the program enters its deficit years. In order to redeem these bonds, additional funds will need to be raised through taxes or borrowing to ensure that retirement benefits can still be paid to retirees. This may involve raising payroll taxes or increasing revenue through other means, but it is unlikely that overall taxes would be reduced in this situation.

Question 5

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

Accepted Answer

The pay-as-you-go principle means that current retirees' benefits are primarily funded by tax payments of current workers. This is because the Social Security system operates on a system of intergenerational transfer, where the contributions of current workers are used to pay the benefits of current retirees. The system does not have personal savings accounts, ownership of stock, or access to funds created by the Federal Reserve system.

Question 6

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

Accepted Answer

Social Security is an intergenerational income transfer program where funds are collected from current workers and used to provide benefits to retirees, survivors, and people with disabilities. It is not a voluntary savings program, but rather a mandatory program that operates based on pay-as-you-go financing. It is also different from private insurance programs, which are based on risk pooling and individual contributions.

Question 7

The Social Security program is primarily a

Accepted Answer

The Social Security program is funded by a payroll tax on current workers, which is then used to provide benefits for current retirees. It is not a forced-savings program, as workers do not receive the principal and interest on their contributions at retirement. It is also not a voluntary savings program, as participation is mandatory for most workers. While the program does provide retirement income, it is not set up on sound insurance principles as there is no individual underwriting, actuarial calculation, or risk management.

Question 8

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

Accepted Answer

Using the Social Security surplus to cover current operating expenses of the federal government is essentially borrowing from the Social Security trust fund. This allows Congress and the president to spend more without raising current taxes or borrowing from the general public, which can be politically unpopular. However, it also adds to the national debt and reduces the amount of funds available to pay future Social Security benefits.

Question 9

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

Accepted Answer

The income cutoff for the Social Security retirement program was $106,800 as of 2011. This means that individuals earning more than $106,800 did not have to pay the payroll tax on any earnings above that amount.

Question 10

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

Accepted Answer

When the Social Security system begins running a deficit, the funds to redeem the bonds in the trust fund will have to come from higher taxes, spending reductions in other programs, or additional government borrowing. This is because the Social Security system is largely funded by payroll taxes, and if the system is no longer able to pay out benefits solely from those taxes, additional funding will be needed from other sources. Selling private equities and securities or liquidating equity capital would not be viable options for funding Social Security because these funds are typically invested for long-term growth and cannot be readily sold without incurring significant losses. Similarly, surplus funds deposited in governmental banking accounts likely will not be sufficient to cover any deficits in the Social Security system.

Question 11

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

Accepted Answer

In 2010, the number of workers per Social Security beneficiary was 2.9. By the year 2030, this figure is expected to fall to approximately 2.1, according to the Social Security Board of Trustees' 2020 Annual Report.

Question 12

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

Accepted Answer

The baby boom generation reaching retirement age means there will be more Social Security beneficiaries, while the number of workers supporting them will not increase at the same rate. Therefore, the number of workers per Social Security beneficiary is expected to decline, and the most significant decline is predicted to be to approximately two workers per beneficiary.

Question 13

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

Accepted Answer

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

Question 14

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?

Accepted Answer

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

Question 15

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

Accepted Answer

The 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, which will lead to a decrease in the surplus and eventually a deficit in the Social Security system. The other options may have an impact on the Social Security system, but they are not the primary factor causing the expected deficit.

Question 16

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

Accepted Answer

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

Question 17

Demographic conditions

Accepted Answer

The baby boom generation refers to the large number of people born in the United States between 1946 and 1964. As this generation begins to retire around 2011, there will be a significant increase in the number of retirees and a decrease in the number of workers paying into the Social Security system. This will make the demographic conditions less favorable for the Social Security system.

Question 18

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?

Accepted Answer

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

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

The Social Security System currently invests its surplus revenues in U.S. Treasury bonds. This means that the money is loaned to the federal government and earns interest that is later used to fund Social Security benefits.

Quiz 30: The Economics of Social Security