Question 1

Calculations make it clear that for the majority of current retirees, the rate of return on Social Security taxes and benefits was

Accepted Answer

The rate of return on Social Security taxes and benefits has been estimated to be approximately equal to that of private stock-market investments for the majority of current retirees.

Question 2

The workers per retiree ratio

Accepted Answer

Prior to 1950, the workers per retiree ratio was above 16 due to a large working-age population and a smaller elderly population. However, as life expectancy increased and birth rates declined, the ratio gradually decreased. As of 2021, the ratio is around 3 in developed countries. Therefore, choice B is the best answer.

Question 3

If you overhear a group of people talking about their plans to save for their retirement and one of them says that it causes them to save more because, as they reason it, "if there wasn't Social Security I could never retire; there is, so I will and I need to save for that." You would attribute this to the

Accepted Answer

This statement reflects the induced retirement effect, where the existence of a retirement benefit (like Social Security) motivates individuals to save more for their retirement, as it makes the prospect of retiring more tangible and achievable.

Question 4

Current calculations make it clear that for the vast majority of young workers, the rate of return on Social Security taxes and benefits will be

Accepted Answer

Multiple studies have shown that the rate of return on Social Security taxes and benefits is lower than what would have been generated in private stock-market investments for the vast majority of young workers. This is because Social Security is a pay-as-you-go system, meaning that current workers finance the benefits of current retirees, rather than investing their money into private accounts. In contrast, private stock-market investments have the potential for higher rates of return due to market growth and individual investment choices.

Question 5

Present value analysis suggests that high income earners

Accepted Answer

Present value analysis suggests that high income earners cannot make an average real rate of return through Social Security, even if they live past 100. This is because the amount they pay into the system exceeds the benefits they can receive, given the maximum benefit limit set by the Social Security Administration. Therefore, their net present value of Social Security is negative, meaning they are getting a lower return on their investment compared to other savings or investment options.

Question 6

If you save more because Social Security motivates you to provide a greater level of inheritance for your children, then this is referred to by economists as the

Accepted Answer

The bequest effect refers to the motivation to save more in order to leave a larger inheritance to one's children.

Question 7

The precipitous fall in stock prices between March 2000 and December 2002

Accepted Answer

The precipitous fall in stock prices between March 2000 and December 2002 undercut political support for partial privatization of Social Security. The idea of investing Social Security funds in the stock market lost popularity after the market downturn, as it became clear that such investments can be risky and lead to significant losses in a short period of time.

Question 8

The asset substitution effect tends to

Accepted Answer

The answer of The asset substitution effect tends to
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Question 9

Present value analysis suggests that the real rate of return on Social Security is

Accepted Answer

Present value analysis suggests that Social Security provides a higher rate of return to low income earners than to high income earners. This is because Social Security is designed to provide a progressive benefit structure, where lower earners receive a higher percentage of their pre-retirement income in benefits than higher earners. Therefore, the real rate of return is roughly 3% for low income earners and may be negative for high income earners.

Question 10

If you overhear a group of people talking about their plans to save for their retirement and one of them says that it causes them to save less because, as they reason it, "the government is saving for me" you would attribute this to the

Accepted Answer

The asset substitution effect describes a situation where individuals may save less for themselves because they perceive that they have a substitute in place, such as government savings or pensions, which reduces their own need to save. This effect explains why someone might save less for retirement, believing that the government's efforts (through social security or other retirement benefits) are sufficient for their future needs.

Question 11

The induced retirement effect

Accepted Answer

The answer of The induced retirement effect
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Question 12

Using rate-of-return analysis to determine who benefits and who does not benefit from the current structure of Social Security is

Accepted Answer

Rate-of-return analysis is rejected by those who view Social Security as a form of social insurance rather than as an investment opportunity. This perspective emphasizes the program's role in providing a safety net for the elderly, disabled, and survivors, rather than focusing on the financial returns of contributions.

Question 13

If you overhear a group of people talking about their plans to save for their retirement and one of them says that it causes them to save less and the other says they will save more, you would conclude

Accepted Answer

The statement suggests that different individuals have different perspectives and priorities which influence their decision to save for retirement. Therefore, it is rational for one person to save less while it can also be rational for another person to save more based on their individual circumstances and priorities. The statement does not suggest that Social Security affects no one's saving, so option B is incorrect. There is no basis to conclude that one person is rational and the other is irrational, therefore options C and D are incorrect.

Question 14

The demographic bulge that is at the heart of Social Security's long-term problems is attributable to a baby boom that occurred

Accepted Answer

The baby boom that created the demographic bulge in Social Security's long-term problems occurred after World War II, when soldiers returned home and started families. This led to a significant increase in births between the years of 1946 and 1964, causing a large portion of the population to reach retirement age around the same time.

Question 15

Under Social Security the surplus (the excess of tax receipts over benefit payments)

Accepted Answer

The surplus funds under Social Security are invested in the form of US Treasury Notes, which is a type of government debt. This helps to finance other government activities while ensuring that there is enough money to pay future Social Security benefits.

Question 16

The bequest effect tends to

Accepted Answer

The bequest effect refers to the tendency of individuals to save more due to the desire to leave an inheritance to their heirs. As a result, the bequest effect causes an increase in savings rather than a decrease.

Question 17

Because of Social Security, people are retiring

Accepted Answer

Social Security provides financial support to individuals in retirement, allowing them to retire earlier than they might have been able to without such support.

Question 18

The net effect of savings of the asset substitution, induced retirement and bequest effects combined is that people save ________they would have without Social Security.

Accepted Answer

The asset substitution effect encourages individuals to save more while the other two effects (induced retirement and bequest) reduce the incentives to save. Overall, the retirement and bequest effects tend to dominate the asset substitution effect, resulting in people saving slightly less than they would have without Social Security.

Question 19

If you save more because Social Security allows you to retire earlier than you would have retired had Social Security neither taxed you nor provided you with benefits, then this is referred to by economists as the

Accepted Answer

The induced retirement effect refers to the situation where individuals retire earlier than they would have without Social Security because they receive retirement benefits from the program. This effect is often attributed to the fact that Social Security provides a steady and guaranteed income stream, making it easier for people to plan and save for retirement. As a result, individuals may choose to retire earlier than they would have otherwise, leading to an earlier exit from the labor force and an increase in savings. The other options (slovenly effect, bequest effect, and asset substitution effect) do not accurately describe this phenomenon.

Question 20

If you save less because the government is going to tax you and later provide you with a benefit, then this reduction in savings is referred to by economists as the

Accepted Answer

The reduction in savings that occurs when individuals expect the government to tax them and then provide a benefit later is known as the asset substitution effect. This refers to individuals substituting government-provided benefits for their own savings, reducing the amount they save. The other options (slovenly effect, bequest effect, and induced retirement effect) do not accurately describe this particular phenomenon.

Quiz 40: Social Security