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ECO 450 WEEK 11 FINAL EXAM

ECO 450 WEEK 11 FINAL EXAM

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ECO 450 WEEK 11 FINAL EXAM

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 n

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