Chapter 20 Use The Following Formula Answer The

103. Use the following formula to answer the indicated question: Benefit amount = Maximum award – 0.4 (Wages in

excess of ceiling) Lucy is retired and earns $12,000 per year working part-time. She is entitled to a maximum

Social Security retirement benefit of $14,000. Social Security regulations allow her to earn $9,000 and still get

maximum benefits. Lucy‘s total income, including Social Security benefits, is

104. Use the following formula to answer the indicated question: Benefit amount = Maximum award – 0.4 (Wages in

excess of ceiling) Renard is retired and earns $10,000 per year working part-time. He is entitled to a maximum

Social Security retirement benefit of $12,000. Social Security regulations allow him to earn $7,000 and still get

maximum benefits. If he increases the number of hours he works and thus increases his earnings to $20,000,

his total income will increase by

105. The percentage of the working-age population that is working or seeking work is the

A. Employment rate.

106. Since 1950, the labor force participation rate of older men has primarily

A. Increased because of the high marginal tax rate implicit in the Social Security system.

107. The Social Security program tends to

A. Increase work incentives for both older and younger workers.

108. The primary cost of the Social Security program is the

109. If the Social Security program was privatized,

110. Social Security

A. Is an intergenerational redistribution of income.

111. In the 1970s in the United States, there were about ____ workers for every retired person.

A. 4

112. By 2030 in the United States there will be ____ workers for every retired person.

113. The official poverty index is based on a comparison of cash and in-kind benefits with family size.

114. Almost every U.S. household receives some form of income transfer payments.

115. The Social Security payments received by retired persons are an in-kind transfer payment.

116. Large in-kind benefits tend to increase the incentive to seek employment.

117. Medicaid provides cash to the poor so that they may purchase medicine and doctors’services.

118. Social Security is a welfare program.

119. Social insurance programs are event-conditional.

120. The existence of income transfer programs indicates that the market mechanism has failed.

121. The existence of income transfer programs indicates that government failure has occurred.

122. The basic goal of income transfer programs is to reduce income inequalities.

123. Income transfer programs can change the mix of output.

124. To be eligible for a welfare program, a recipient must be elderly.

125. If the welfare benefits for each household in poverty equal the poverty gap, people who are not poor have

a strong incentive to become poor.

126. Lower marginal tax rates in welfare programs will increase the incentive to work.

127. Lower marginal tax rates increase the breakeven level of income faced by welfare recipients.

128. Low marginal tax rates discourage work effort but make fewer people eligible for welfare.

129. The higher the marginal tax rate for a given welfare program, the greater the damage to the work incentives of

recipients, ceteris paribus.

130. Higher basic benefits increase the breakeven level of income faced by welfare recipients.

131. Lower marginal tax rates for welfare programs will reduce the number of people on welfare.

132. A zero marginal tax rate in welfare programs will make everyone eligible for welfare benefits.

133. The impact of a decrease in the marginal tax rate on labor supply depends on the tax elasticity of labor supply.

134. The impact of a decrease in the marginal tax rate on labor supply will be larger as the tax elasticity of supply

gets smaller.

FALSE

135. Setting time limits on welfare eligibility will increase the incentive to work.

136. The Social Security program is an income transfer program for retired workers only.

137. The primary economic cost of the Social Security program is the financial cost of administering the program.

138. The creation of the Social Security program caused a decrease in the labor force participation rate.

139. The creation of the Social Security program had no impact on the labor force participation rate because people

are not interested in working past the age of 65.

140. The creation of a retirement program, such as the Social Security program, will cause an increase in the wage

rate, ceteris paribus.

TRUE

141. Social Security payments depend on an individual’s wages, but the benefits formula is progressive.

142. The earnings test reduces the amount of Social Security payments a retiree can collect unless she or he

is under 60.

143. What are in-kind transfers, and why are they more target-efficient than cash transfers?

144. Explain why Social Security and Medicare aren’t welfare programs.

benefits; in other words, they are not means-tested.

145. Graphically show how transfer payments affect labor supply and production possibilities.

148. Explain the trade-off between equity and economic efficiency inherent in the welfare system.

147. Describe how the moral hazard associated with welfare benefits can be reduced, and tell what other

problems this creates.

148. Explain how the Social Security program affects economic output.

Chapter 20 Test Bank Summary