ECO 450 Week 11 Final Exam – Strayer
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Chapters 8 Through 18
ECO 450 Week 6 Quiz
Chapter 8
Social
Security and
Social Insurance
Social Insurance
True/False Questions
1. The Social
Security pension system is a fully funded retirement plan.
2. Social
Security pension benefits are transfers from workers to retirees.
3. Social
Security pensions are financed by voluntary contributions by workers.
4. The gross
replacement rate measures the ratio of taxes paid per year by workers to their
annual Social Security pension when they retire.
5. In the year
prior to retirement, a worker earned $20,000 and paid $5,000 in taxes on those
earnings. His annual Social Security pension is $10,000 per year. Then it
follows that his net replacement rate is 50 percent.
6. The gross
replacement rate for Social Security pensions is the same for all workers
independent of their preretirement earnings.
7. The annual
growth in wages subject to Social Security taxes is 3 percent. Given the
payroll tax rate, the growth in funds available to pay pension benefits is also
3 percent.
8. The
asset-substitution effect of Social Security pensions discourages saving.
9. The
availability of Social Security pensions to workers over normal retirement age
results in an income effect unfavorable to work but no substitution
effect.
10. The bequest
effect of Social Security encourages workers to save less.
11. The normal
retirement age for Social Security old-age pensions is 67 for people born in
the United States in 1960 or later.
12. Workers in the
United States can retire under Social Security at age 62 with lower pensions
than they would receive at their normal retirement age.
13. As of 2009,
retired workers between the ages of 62 and their normal retirement age were
subject to an “earnings test” that reduced their pension by $1 for each $2 of
earnings after a certain minimum level of earnings.
14. Reducing the
replacement rate will have no effect on the tax rate necessary to finance
pensions under a pay-as-you-go, tax-financed pension system.
15. Workers who quit their jobs are eligible for
unemployment insurance benefits in the United States.
16. By 2050, the expected percentage of
the U.S. population that is considered elderly will be less than 20%.
17. Social Security was created in
1965.
18. On average, the elderly are less
likely to be poor when compared to the rest of the U.S. population.
Multiple
Choice Questions
1. The Social
Security retirement system:
a. is
a fully funded pension system.
b. is
a tax-financed system that pays benefits from taxes that are invested to return
principal and interest to workers when they retire.
c. is
a tax-financed retirement system that finances pensions by taxing workers each
year and transferring the bulk of revenues obtained directly to retirees.
d. does
not use taxes on workers to pay pensions to retirees.
2. The gross replacement rate:
a. measures
a worker’s monthly retirement benefit divided by monthly earnings before taxes
in the year prior to retirement.
b. measures
a worker’s monthly retirement benefit divided by monthly earnings after taxes
in the year prior to retirement.
c. is
an increasing function of gross monthly earnings prior to retirement.
d. is
independent of gross monthly earnings prior to retirement.
3. A worker earns $2,000 per month before taxes. He
pays $140 per month payroll tax on those wages.In addition, the income taxes on
those wages are $360 per month. On retirement, the worker receives a
Social Security pension of $750 per month. Which of the following statements is
true?
a. The
worker’s gross replacement rate is 50 percent.
b. The
worker’s net replacement rate is 50 percent.
c. The
worker’s net replacement rate is 38 percent.
d. The
worker’s net replacement rate is 75 percent.
4. The growth in
hourly wages over the past 50 years has averaged about 2 percent per year. However,
the growth in Social Security pensions has far exceeded this 2-percent rate.
The growth in tax revenue to finance Social Security benefits in excess of 2
percent per year can be accounted for by:
a. increases
in payroll tax rates.
b. use
of other taxes beside the payroll tax to pay Social Security benefits.
c. an
increase in the number of workers paying Social Security taxes.
d. either
(a) or (b)
e. either
(a) or (c)
5. Given the
structure and level of gross replacement rates and the expected future growth
of labor earnings subject to the payroll tax, the tax rates used to tax
payrolls were increased in the 1980s because:
a. the
number of retirees per worker will increase.
b. the
number of retirees per worker will decrease.
c. wages
are expected to decline.
d. the
size of the work force is expected to increase.
6. Which of the
following is likely to increase the net federal debt as a share of GDP?
a. a
federal budget surplus.
b. a
federal budget deficit.
c. a
recession.
d. either
b or c.
7. The
asset-substitution effect of the Social Security retirement system leads all
workers to:
a. save
more for retirement.
b. save
less for retirement.
c. save
absolutely nothing for retirement.
d. work
more
8. Which of the following is a consequence of a
growing federal budget deficit in the United States?
a. A
decrease in the federal debt outstanding.
b. An
increase in the federal debt outstanding.
c. A
decrease in the portion share of federal government expenditures that must be
allocated to interest in the future.
d. An
increase in national saving.
9. The
induced-retirement effect of the Social Security pension system induces workers
to:
a. save
less for retirement.
b. save
more for retirement.
c. reduce
savings for retirement to zero.
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