Question 1

Briefly explain why the Social Security system will face a "crisis" in the coming years.

Accepted Answer

The pay-as-you-go Social Security system

Question 2

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

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. 
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.

Question 3

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

Accepted Answer

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) income and other federal taxes will have to be raised (or additional funds will have to be borrowed) in order to redeem the bonds held by 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. 
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) income and other federal taxes will have to be raised (or additional funds will have to be borrowed) in order to redeem the bonds held by 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.

Question 4

(I) Current Social Security retirees typically receive real benefits that are equal to three or four times the amount of their contributions into the system. (II) Current young workers can expect to receive real benefits less than their contributions into the system.

Accepted Answer

A) I is true; II is false. 
B) I is false; II is true. 
C) Both I and II are false. 
D) Both I and II are true. 
A) I is true; II is false. 
B) I is false; II is true. 
C) Both I and II are false. 
D) Both I and II are true.

Question 5

Under the current Social Security system, married persons may draw benefits based on

Accepted Answer

A) only their own earnings. 
B) their own earnings or draw 50 percent of the benefits earned by their spouse. 
C) their own earnings plus 50 percent of their spouse's earnings. 
D) their own earnings plus 100 percent of their spouse's earnings. 
A) only their own earnings. 
B) their own earnings or draw 50 percent of the benefits earned by their spouse. 
C) their own earnings plus 50 percent of their spouse's earnings. 
D) their own earnings plus 100 percent of their spouse's earnings.

Question 6

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

Accepted Answer

A) U.S. Treasury bonds. 
B) bonds issued by domestic corporations. 
C) U.S. stock. 
D) U.S. and foreign stock. 
A) U.S. Treasury bonds. 
B) bonds issued by domestic corporations. 
C) U.S. stock. 
D) U.S. and foreign stock.

Question 7

Which of the following groups derive the highest rate of return from the taxes they pay into the Social Security retirement system?

Accepted Answer

A) blacks 
B) whites 
C) Hispanics 
D) married women working full-time 
A) blacks 
B) whites 
C) Hispanics 
D) married women working full-time

Question 8

In 2009, the Social Security payroll tax did not apply to annual income above

Accepted Answer

A) $15,000. 
B) $32,000. 
C) $106,800. 
D) $200,000. 
A) $15,000. 
B) $32,000. 
C) $106,800. 
D) $200,000.

Question 9

The structure of the Social Security system is particularly advantageous to

Accepted Answer

A) blacks. 
B) those with life shortening diseases such as diabetes. 
C) groups with below average earnings and above average life expectancy. 
D) groups with above average earnings and below average life expectancy. 
A) blacks. 
B) those with life shortening diseases such as diabetes. 
C) groups with below average earnings and above average life expectancy. 
D) groups with above average earnings and below average life expectancy.

Question 10

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

Accepted Answer

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. 
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.

Question 11

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

A) $15,000. 
B) $32,700. 
C) $106,800. 
D) $250,000. 
A) $15,000. 
B) $32,700. 
C) $106,800. 
D) $250,000.

Question 12

Jane states that "Social Security is an unfair program. It discriminates against married women in the workforce and middle-income recipients." Evaluate this view.

Accepted Answer

Social Security discriminates against ma

Question 13

In approximately what year will Social Security outlays begin to exceed revenues?

Accepted Answer

A) 2008 
B) 2017 
C) 2050 
D) 3030 
A) 2008 
B) 2017 
C) 2050 
D) 3030

Question 14

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

Accepted Answer

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. 
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.

Question 15

During the last two decades, most of the surplus generated by the Social Security system was

Accepted Answer

A) used to finance current government expenditures. 
B) invested in government bonds that will make it possible for the federal government to pay future retirement benefits without an increase in federal taxes. 
C) used to pay down the national debt. 
D) invested in bonds offered by foreign governments and businesses that will provide a stream of future income for the finance of retirement benefits. 
A) used to finance current government expenditures. 
B) invested in government bonds that will make it possible for the federal government to pay future retirement benefits without an increase in federal taxes. 
C) used to pay down the national debt. 
D) invested in bonds offered by foreign governments and businesses that will provide a stream of future income for the finance of retirement benefits.

Question 16

Detailed studies indicate that, on balance, the Social Security retirement system

Accepted Answer

A) redistributes a substantial amount of income from the rich to the poor. 
B) redistributes a substantial amount of income from whites to blacks. 
C) is particularly advantageous to those with a shorter life expectancy. 
D) is not particularly advantageous to the poor due to their shorter life expectancy. 
A) redistributes a substantial amount of income from the rich to the poor. 
B) redistributes a substantial amount of income from whites to blacks. 
C) is particularly advantageous to those with a shorter life expectancy. 
D) is not particularly advantageous to the poor due to their shorter life expectancy.

Question 17

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

Accepted Answer

A) being invested in foreign bonds, which will provide Americans with a source of income when the baby boom generation retires. 
B) being invested in government bonds, which will require an increase in general tax revenues when the bonds come due. 
C) separated from other government revenue so politicians will not spend the money during the current period. 
D) being channeled into earmarked private savings accounts. 
A) being invested in foreign bonds, which will provide Americans with a source of income when the baby boom generation retires. 
B) being invested in government bonds, which will require an increase in general tax revenues when the bonds come due. 
C) separated from other government revenue so politicians will not spend the money during the current period. 
D) being channeled into earmarked private savings accounts.

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

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. 
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.

Question 19

Which of the following best explains why the Social Security system is expected to face financial difficulties in the near future?

Accepted Answer

A) Too much Social Security revenue was invested in the private sector rather than in government bonds. 
B) The federal government does not pay interest on the money it borrows from the Social Security system. 
C) The funds in the Social Security trust fund were invested in high-risk ventures that failed to pay off. 
D) The number of workers paying into the system is expected to decline relative to the number of retirees collecting benefits. 
A) Too much Social Security revenue was invested in the private sector rather than in government bonds. 
B) The federal government does not pay interest on the money it borrows from the Social Security system. 
C) The funds in the Social Security trust fund were invested in high-risk ventures that failed to pay off. 
D) The number of workers paying into the system is expected to decline relative to the number of retirees collecting benefits.

Question 20

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

Accepted Answer

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. 
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.

Exam 17: Appendix: the Economics of Social Security

Briefly explain why the Social Security system will face a "crisis" in the coming years.

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

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

(I) Current Social Security retirees typically receive real benefits that are equal to three or four times the amount of their contributions into the system. (II) Current young workers can expect to receive real benefits less than their contributions into the system.

Under the current Social Security system, married persons may draw benefits based on

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

Which of the following groups derive the highest rate of return from the taxes they pay into the Social Security retirement system?

In 2009, the Social Security payroll tax did not apply to annual income above

The structure of the Social Security system is particularly advantageous to

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

Jane states that "Social Security is an unfair program. It discriminates against married women in the workforce and middle-income recipients." Evaluate this view.

In approximately what year will Social Security outlays begin to exceed revenues?

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

During the last two decades, most of the surplus generated by the Social Security system was

Detailed studies indicate that, on balance, the Social Security retirement system

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

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?

Which of the following best explains why the Social Security system is expected to face financial difficulties in the near future?

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

The Economic Approach

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Consumer Choice and Elasticity

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

B: Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Appendix: Government Spending and Taxation

Appendix: the Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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