Question 1

Explain the two fundamental problems related to investing the Social Security trust fund in the stock market.

Accepted Answer

First,politicians tend to use this fund

Question 2

Which is a moral hazard effect of Social Security?

Accepted Answer

A)  Retirees die sooner than they would without Social Security. 
B)  Workers retire sooner than they would without Social Security. 
C)  Retirees buy less health insurance than they would without Social Security. 
D)  Workers work longer and become more unhealthy than they would without Social Security. 
A)  Retirees die sooner than they would without Social Security. 
B)  Workers retire sooner than they would without Social Security. 
C)  Retirees buy less health insurance than they would without Social Security. 
D)  Workers work longer and become more unhealthy than they would without Social Security.

Question 3

Which of the following would be a benefit of privatizing Social Security?

Accepted Answer

A)  Savings would be managed by federally paid financial planners,thus insulating individuals from excessively high management fees. 
B)  Individuals with varying degrees of risk aversion would have options regarding how they wanted to invest. 
C)  Administrative costs are lower with privatization than with the federal program. 
D)  Government would no longer need to be involved in any way. 
A)  Savings would be managed by federally paid financial planners,thus insulating individuals from excessively high management fees. 
B)  Individuals with varying degrees of risk aversion would have options regarding how they wanted to invest. 
C)  Administrative costs are lower with privatization than with the federal program. 
D)  Government would no longer need to be involved in any way.

Question 4

Under one plan for Social Security reform,younger workers would be able to put up to $1,000 of their payroll taxes into an individual retirement account (IRA)in exchange for accepting lower benefits when they retire.However,the supporters of this plan typically offer a method of ensuring that the funds in the IRA are turned into benefits that work in a Social Security-like fashion (e.g.,monthly payments until one dies).
(a)What restriction could policy makers implement to ensure that the money in the IRA would be paid similarly to Social Security?
(b)Why wouldn't policy makers simply allow individuals to accept a lower level of Social Security benefits in exchange for a lower level of taxation without also mandating that individuals put the saved tax funds into an IRA?

Accepted Answer

(a)Policy makers could mandate that all

Question 5

If a politician proposed that Social Security be made more solvent by increasing the amount employers pay into the Social Security program,which approach is that politician advocating for the reform of Social Security?

Accepted Answer

A)  raising taxes further 
B)  extending the base of taxable wages 
C)  raising the retirement age 
D)  lowering benefits for all recipients 
A)  raising taxes further 
B)  extending the base of taxable wages 
C)  raising the retirement age 
D)  lowering benefits for all recipients

Question 6

In order to maintain a solvent pay-as-you-go Social Security system in the future:

Accepted Answer

A)  the retirement age will have to be gradually increased in accordance with longer expected lives. 
B)  the government may have to raise the payroll tax rate or the maximum amount of taxable earnings. 
C)  the government may have to increase benefits to keep up with inflation. 
D)  benefits will only be paid to retirees with documented financial need after 2040. 
A)  the retirement age will have to be gradually increased in accordance with longer expected lives. 
B)  the government may have to raise the payroll tax rate or the maximum amount of taxable earnings. 
C)  the government may have to increase benefits to keep up with inflation. 
D)  benefits will only be paid to retirees with documented financial need after 2040.

Question 7

What is the full benefits age for those born in 1960 or later?

Accepted Answer

A)  50 
B)  55 
C)  67 
D)  72 
A)  50 
B)  55 
C)  67 
D)  72

Question 8

If your average preretirement earnings were $30,000 per year,your highest preretirement earnings were $90,000 per year,and you receive $20,000 per year in retirement benefits,what is the replacement rate?

Accepted Answer

A)  16.67% 
B)  22.22% 
C)  33.33% 
D)  66.67% 
A)  16.67% 
B)  22.22% 
C)  33.33% 
D)  66.67%

Question 9

Which of the following refers to the debt incurred by the government because early generations of beneficiaries received much more in benefits than they paid in taxes?

Accepted Answer

A)  early debt 
B)  legacy debt 
C)  program deficits 
D)  Social Security fiscal imbalance 
A)  early debt 
B)  legacy debt 
C)  program deficits 
D)  Social Security fiscal imbalance

Question 10

The Federal Insurance Contributions Act (FICA)tax on earnings is _________ for employees and _________ for employers.

Accepted Answer

A)  4.3%; 4.3% 
B)  4.3%; 0% 
C)  6.2%; 6.2% 
D)  6.2%; 0% 
A)  4.3%; 4.3% 
B)  4.3%; 0% 
C)  6.2%; 6.2% 
D)  6.2%; 0%

Question 11

Which person has the highest Social Security Wealth on average?

Accepted Answer

A)  a woman born in 1920 
B)  a man born in 1920 
C)  a woman born in 1950 
D)  a man born in 1950 
A)  a woman born in 1920 
B)  a man born in 1920 
C)  a woman born in 1950 
D)  a man born in 1950

Question 12

The earnings test in Social Security is essentially a:

Accepted Answer

A)  tax on earnings. 
B)  subsidy on earnings. 
C)  forced savings mechanism. 
D)  redistribution mechanism. 
A)  tax on earnings. 
B)  subsidy on earnings. 
C)  forced savings mechanism. 
D)  redistribution mechanism.

Question 13

Existing research suggests that each dollar of Social Security wealth crowds out approximately__________ of private savings.

Accepted Answer

A)  $0 
B)  $0.35 
C)  $0.60 
D)  $0.85 
A)  $0 
B)  $0.35 
C)  $0.60 
D)  $0.85

Question 14

Suppose that you hear a politician state that her plan for reforming Social Security will work because rich retirees don't need Social Security benefits.Which approach to Social Security reform is the politician probably advocating?

Accepted Answer

A)  raising taxes further 
B)  raising the retirement age 
C)  lowering benefits for all recipients 
D)  lowering benefits for higher-income groups 
A)  raising taxes further 
B)  raising the retirement age 
C)  lowering benefits for all recipients 
D)  lowering benefits for higher-income groups

Question 15

The retirement hazard rate refers to the:

Accepted Answer

A)  percentage of working people who retire at a certain age. 
B)  percentage of retirees who are injured at a certain age. 
C)  percentage of retirees who die at a certain age. 
D)  percentage of working people who die at a certain age. 
A)  percentage of working people who retire at a certain age. 
B)  percentage of retirees who are injured at a certain age. 
C)  percentage of retirees who die at a certain age. 
D)  percentage of working people who die at a certain age.

Question 16

The Social Security program faces a serious financing problem over the next 75 years because it has promised benefits:

Accepted Answer

A)  that exceed what it expects to collect in taxes by over $10 trillion. 
B)  equal to what it expects to collect in taxes. 
C)  that fall short of what it expects to collect in taxes by over $10 billion. 
D)  that exceed what it is allowed to collect in taxes since the tax rate cannot be changed. 
A)  that exceed what it expects to collect in taxes by over $10 trillion. 
B)  equal to what it expects to collect in taxes. 
C)  that fall short of what it expects to collect in taxes by over $10 billion. 
D)  that exceed what it is allowed to collect in taxes since the tax rate cannot be changed.

Question 17

Which of the following was a recommendation or action of the Greenspan Commission in 1983?

Accepted Answer

A)  Social Security should become more of a pay-as-you-go system. 
B)  Social Security should become more of an unfunded system. 
C)  Scheduled payroll tax increases should be accelerated. 
D)  Scheduled payroll tax increases should be slowed. 
A)  Social Security should become more of a pay-as-you-go system. 
B)  Social Security should become more of an unfunded system. 
C)  Scheduled payroll tax increases should be accelerated. 
D)  Scheduled payroll tax increases should be slowed.

Question 18

Which of the following program details do NOT belong to Social Security?

Accepted Answer

A)  The total FICA tax burden on self-employed people is 12.4%. 
B)  Eligibility requirements include 40 quarters of work. 
C)  An age of 62 or older is an eligibility requirement. 
D)  When eligible,the Social Security claimant receives an annuity payment. 
A)  The total FICA tax burden on self-employed people is 12.4%. 
B)  Eligibility requirements include 40 quarters of work. 
C)  An age of 62 or older is an eligibility requirement. 
D)  When eligible,the Social Security claimant receives an annuity payment.

Question 19

Which of the following is a reason behind the fiscal imbalance of Social Security?

Accepted Answer

A)  Wage growth has slowed dramatically. 
B)  An increase in birth rates has occurred over time. 
C)  People are not living as long. 
D)  More covered workers have immigrated to the U.S. 
A)  Wage growth has slowed dramatically. 
B)  An increase in birth rates has occurred over time. 
C)  People are not living as long. 
D)  More covered workers have immigrated to the U.S.

Question 20

If a politician suggested that Social Security benefits be means-tested,which of the following approaches is that politician suggesting?

Accepted Answer

A)  extending the base of taxable wages 
B)  raising the retirement age 
C)  lowering benefits for all recipients 
D)  lowering benefits for higher-income groups 
A)  extending the base of taxable wages 
B)  raising the retirement age 
C)  lowering benefits for all recipients 
D)  lowering benefits for higher-income groups

Exam 13: Social Security

Explain the two fundamental problems related to investing the Social Security trust fund in the stock market.

Which is a moral hazard effect of Social Security?

Which of the following would be a benefit of privatizing Social Security?

If a politician proposed that Social Security be made more solvent by increasing the amount employers pay into the Social Security program,which approach is that politician advocating for the reform of Social Security?

In order to maintain a solvent pay-as-you-go Social Security system in the future:

What is the full benefits age for those born in 1960 or later?

If your average preretirement earnings were $30,000 per year,your highest preretirement earnings were $90,000 per year,and you receive $20,000 per year in retirement benefits,what is the replacement rate?

Which of the following refers to the debt incurred by the government because early generations of beneficiaries received much more in benefits than they paid in taxes?

The Federal Insurance Contributions Act (FICA)tax on earnings is _________ for employees and _________ for employers.

Which person has the highest Social Security Wealth on average?

The earnings test in Social Security is essentially a:

Existing research suggests that each dollar of Social Security wealth crowds out approximately__________ of private savings.

Suppose that you hear a politician state that her plan for reforming Social Security will work because rich retirees don't need Social Security benefits.Which approach to Social Security reform is the politician probably advocating?

The retirement hazard rate refers to the:

The Social Security program faces a serious financing problem over the next 75 years because it has promised benefits:

Which of the following was a recommendation or action of the Greenspan Commission in 1983?

Which of the following program details do NOT belong to Social Security?

Which of the following is a reason behind the fiscal imbalance of Social Security?

If a politician suggested that Social Security benefits be means-tested,which of the following approaches is that politician suggesting?

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The Federal Insurance Contributions Act (FICA)tax on earnings is _ for employees and _ for employers.