Multiple Choice Quiz


1	Social Security's financing arrangement is described by economists as
		A)	fully-funded.
		B)	pay-as-you-go.
		C)	future funded.
		D)	a hybrid that is pay-as-you with a trust fund.


2	Social Security was intended to be
		A)	a third leg of a tripod that also included individual savings and private pensions.
		B)	enough upon which to retire without any additional sources.
		C)	the only retirement plan for the vast majority of workers.
		D)	b) and c)


3	Social Security is funded with
		A)	premiums paid by workers (like any insurance policy).
		B)	payroll taxes imposed on workers only.
		C)	payroll taxes imposed on employers only.
		D)	payroll taxes imposed equally on workers and their employers.


4	To receive full benefits from Social Security you have to
		A)	have reached the retirement age (which was 65 and is now moving to 67).
		B)	have little or no wealth.
		C)	have little or no pension income.
		D)	a) and c)


5	Economists are concerned that leaving all retirement savings to the private market where people could simply decide not to save would not work well because
		A)	people might use the existence of welfare as a reason not to save leaving future workers with the cost of their retirement.
		B)	failure to save for retirement (unlike other mistakes people make) is not a mistake that can be learned from until it is too late.
		C)	interest rates are too low to provide people with an incentive to save.
		D)	a) and b)


6	Economists generally believe that the existence of Social Security
		A)	causes people to retire earlier than they otherwise would have.
		B)	causes people to save slightly less than they otherwise would have.
		C)	causes people to worker harder than they otherwise would have.
		D)	a) and b)


7	Which of the following predicts that people will save less for their retirement as a result of Social Security's existence.
		A)	the asset substitution effect
		B)	the bequest effect
		C)	the induced retirement effect
		D)	the gross wages effect


8	For people who retired before 1980, their rate-of-return on the Social Security taxes was generally ________ than private investments. For people who retired after 2010, their rate-of-return on the Social Security taxes will almost certainly be ________ than private investments.
		A)	greater, greater
		B)	less, less
		C)	greater, less
		D)	less, greater


9	The application of present value analysis to Social Security is necessary because
		A)	of the uncertainty of earnings.
		B)	taxes are paid at a different point in time than benefits are received.
		C)	tax rates may change.
		D)	retirement ages may change.


10	Social Security will collect less in taxes than it will pay out in benefits at some point in the next 20 years. This will mean that
		A)	the program will end.
		B)	the Social Security Trust Fund will have run out of money.
		C)	treasury bonds in the Social Security Trust Fund will have to be sold to make up the difference.
		D)	taxes will have to be raised or benefits cut

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