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Chapters 8 Through 18
ECO 450 Week 6 Quiz
Chapter 8
Social
Security and
Social Insurance
Social Insurance
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 necessary to finance
pensions under a pay-as-you-go, tax-financed pension system.
15. Workers who quit their jobs are eligible for
unemployment insurance benefits in the United States.
16. By 2050, the expected percentage of
the U.S. population that is considered elderly will be less than 20%.
17. Social Security was created in
1965.
18. On average, the elderly are less
likely to be poor when compared to the rest of the U.S. population.
Multiple
Choice Questions
1. The Social
Security retirement system:
a. is
a fully funded pension system.
b. is
a tax-financed system that pays benefits from taxes that are invested to return
principal and interest to workers when they retire.
c. is
a tax-financed retirement system that finances pensions by taxing workers each
year and transferring the bulk of revenues obtained directly to retirees.
d. does
not use taxes on workers to pay pensions to retirees.
2. The gross replacement rate:
a. measures
a worker’s monthly retirement benefit divided by monthly earnings before taxes
in the year prior to retirement.
b. measures
a worker’s monthly retirement benefit divided by monthly earnings after taxes
in the year prior to retirement.
c. is
an increasing function of gross monthly earnings prior to retirement.
d. is
independent of gross monthly earnings prior to retirement.
3. A worker earns $2,000 per month before taxes. He
pays $140 per month payroll tax on those wages.In addition, the income taxes on
those wages are $360 per month. On retirement, the worker receives a
Social Security pension of $750 per month. Which of the following statements is
true?
a. The
worker’s gross replacement rate is 50 percent.
b. The
worker’s net replacement rate is 50 percent.
c. The
worker’s net replacement rate is 38 percent.
d. The
worker’s net replacement rate is 75 percent.
4. The growth in
hourly wages over the past 50 years has averaged about 2 percent per year. However,
the growth in Social Security pensions has far exceeded this 2-percent rate.
The growth in tax revenue to finance Social Security benefits in excess of 2
percent per year can be accounted for by:
a. increases
in payroll tax rates.
b. use
of other taxes beside the payroll tax to pay Social Security benefits.
c. an
increase in the number of workers paying Social Security taxes.
d. either
(a) or (b)
e. either
(a) or (c)
5. Given the
structure and level of gross replacement rates and the expected future growth
of labor earnings subject to the payroll tax, the tax rates used to tax
payrolls were increased in the 1980s because:
a. the
number of retirees per worker will increase.
b. the
number of retirees per worker will decrease.
c. wages
are expected to decline.
d. the
size of the work force is expected to increase.
6. Which of the
following is likely to increase the net federal debt as a share of GDP?
a. a
federal budget surplus.
b. a
federal budget deficit.
c. a
recession.
d. either
b or c.
7. The
asset-substitution effect of the Social Security retirement system leads all
workers to:
a. save
more for retirement.
b. save
less for retirement.
c. save
absolutely nothing for retirement.
d. work
more
8. Which of the following is a consequence of a
growing federal budget deficit in the United States?
a. A
decrease in the federal debt outstanding.
b. An
increase in the federal debt outstanding.
c. A
decrease in the portion share of federal government expenditures that must be
allocated to interest in the future.
d. An
increase in national saving.
9. The
induced-retirement effect of the Social Security pension system induces workers
to:
a. save
less for retirement.
b. save
more for retirement.
c. reduce
savings for retirement to zero.
d. work
more after retirement.
10. Unemployment
insurance benefits are:
a. financed
by payroll taxes levied on workers.
b. financed
by payroll taxes levied on employers.
c. both
(a) and (b)
d. financed
by sales taxes.
11. Which of the
following is true about the Social Security pension system in the United States?
a. Pensions
received by retired workers are based entirely on their contributions to the
Social Security pension trust fund and the investment return on that fund.
b. Pensions
received by married retirees with dependents are greater than that received by
those without dependents.
c. Gross
replacement rates are inversely related to preretirement earnings.
d. both
(b) and (c)
12. Which of the following can decrease tax rates
necessary to pay pensions for a pay-as-you-go pension system?
a. an
increase in replacement rates
b. a
decrease in the retirement age
c. an
increase in the size of the work force
d. an
increase in the number of retirees
13. Unless
legislation is introduced to change the normal retirement age, people born in
1960 or later will be able to retire with full Social Security benefits at age:
a. 62.
b. 65.
c. 66.
d. 67.
14. The earnings
test for retirees:
a. increases
their incentive to work.
b. is
applied to all retirees.
c. is
applied only to retirees below normal retirement age.
d. reduces
pension benefits by $1 for each $2 of earnings.
e. both
(c) and (d)
15. A nation has
40 million current retirees and a work force of 100 million. Which of the
following is true?
a. The
replacement rate is 40 percent.
b. The
replacement is 2.5.
c. The
dependency ratio is 0.4.
d. The
dependency ratio is 2.5.
16. Social
Security tax rates can be reduced if:
a. taxable
wages decline.
b. the
retirement age is lowered.
c. the
retirement age is raised.
d. the
work force decreases in size.
17. A retiree subject to the earnings test under Social
Security:
a. can
earn as much as he or she chooses without losing Social Security pension
benefits.
b. has
his or her Social Security pension benefits reduced by one dollar for each
dollar of labor earnings.
c. has
his or her Social Security pension benefits reduced immediately by one dollar
for each three dollars of labor earnings.
d. has
his or her Social Security pension benefits reduced by one dollar for each two
dollars of earnings after a certain minimum amount per year.
18. A pay-as-you-go social security retirement system is:
a. exemplified
by the current U.S. social security system.
b. exemplified
by the current Chilean social security system.
c. designed
to have retirees set aside a contribution specifically for themselves during
their earlier working life.
d. both
(a) and (b).
19. Approximately, what percentage of beneficiaries of
U.S. Social Security are retired workers?
a. 50%
b. 60%
c. 70%
d. 80%
20. The Social Security Act was implemented in the United
States in:
a. 1927.
b. 1935.
c. 1947.
d. 1965.
Chapter 9
Government
and Health Care
True/False Questions
1. In the United
States the government pays the health bills of 90 percent of the
population.
2. The American
system of health care is financed by a mix of private and government insurance
programs that pay over 80 percent of the health care bills for U.S.
citizens.
3. Spending per
person on health care in the United States is less than in the United Kingdom
where national health insurance finances health expenditures.
4. Government
spending on health care is declining as a percent of total government
spending.
5. Medicare is a
government program of health insurance for the elderly.
6. Exclusion of
employer-provided health insurance to employees is an indirect subsidy to
private provision of health insurance.
7. Third-party
payments for health care services increase the quantity of health care demanded
by reducing out-of-pocket costs to patients.
8. An increase in
coinsurance and deductibles for health insurance can contribute to a reduction
in expenditures on health care.
9. Half of
Americans do not have health insurance coverage.
10. Under national
health insurance in Great Britain, the price system is used to ration health
care.
11. Approximately
16 percent of GDP was allocated to provision of health care in the United
States as of 2006.
12. Individuals in
the United States, on average, pay 50 percent of their health care costs
out-of-pocket, and the remaining 50 percent is paid by insurance, governments,
and charity.
13. Asymmetric
information in the market for health care occurs when sellers of medical care
are better informed about cost and quality of care than buyers.
14. Because of
third-party payment for services in the market for health care, the price paid
by buyers is less than the payment sellers receive, and the marginal social
cost of health care exceeds its marginal social benefit.
15. Medicaid costs
are paid entirely by the federal government.
16. Healthcare expenditures in the U.S. are projected to be
20% of GDP by 2017.
17. Asymmetric information can occur when the provider of a
service is better informed than the consumer of the service.
18. A risk averse individual prefers to pay certain modest
costs in exchange for possible unforeseen high costs.
Multiple
Choice Questions
1. Most of the medical bills of Americans in the
United States are paid by:
a. the
patients.
b. private
and government health insurance.
c. charities.
d. Medicaid.
2. Since 1960,
expenditures on health care as a percent of GDP has:
a. been
cut in half.
b. nearly
tripled.
c. remained
the same.
d. doubled.
3. The government
program that provides the health insurance to the poor in the United States is
called:
a. national
health insurance.
b. Medicare.
c. Medicaid.
d. employer-provided
health insurance.
4. Which of the
following programs accounts for the greatest amount of government expenditures
on public health in the United States?
a. Medicare
b. worker’s
compensation
c. the
Public Health Service
d. medical
research
5. Which of the
following subsidizes private provision of health insurance?
a. Medicare
b. Medicaid
c. the
Public Health Service
d. tax
exclusion of the value of employer-provided health insurance to workers
6. Which of the following could help decrease the rate of
increase of spending on health care in the United States?
a. a reduction in the deductibles on private
health insurance policies
b. an increase in the coinsurance rate on health
insurance and subjecting a larger volume of services to coinsurance
c. extension of Medicaid insurance to all
persons who are poor
d. a reduction in the coinsurance rate on health
insurance and subjecting a smaller volume of services to coinsurance
7. Which of the
following is an example of the “moral hazard of health insurance”?
a. an increase in the number of surgeries
prescribed for benign prostate disease beyond the point at which the marginal
benefit equals the marginal cost
b. a
decreased willingness of individuals to go to the doctor for minor ailments
because of increases in coinsurance rates
c. an underallocation of resources to medical
care because of monopoly power of hospitals
d. experience rating of health insurance groups
by health insurers
8. A third-party
payment system for health care:
a. results because of externalities in the
production of health care services.
b. encourages more than the efficient amount of
resources to be allocated to health care.
c. encourages patients and health care providers
to economize on the use of health care resources.
d. means that patients pay the full price for
health care services they consume.
9. Which of the following services is typically not
covered under private health insurance and Medicare in the United
States?
a. treatment for heart attack
b. surgery
c. office visits to physicians
d. long-term care services
10. Under national
health insurance as operated in Great Britain,
a. the British system pays fees equal to half of
the costs of services provided to them.
b. general practice physicians are paid on a
per-patient rather than on a per-unit-of-service basis.
c. patients requiring surgery can pick their
surgeons and can usually obtain the surgery in a matter of days, even if it is
not an emergency.
d. there are no government limits on health care
spending by hospitals.
11. Which of the
following is true about the Medicaid program in the United States?
a. It is a program of health insurance for the
elderly.
b. Its costs are paid entirely by the federal
government.
c. It is a program of health insurance for the
poor.
d. Its costs have been declining in recent
years.
12. In the United
States, individuals pay approximately what percent of the cost of their medical
care directly to providers?
a. 100 percent
b. 50 percent
c. 15 percent
d. zero
13. The percent of total health care costs in the
United States paid for by governments is approximately:
a. 90
percent.
b. 45
percent.
c. 25
percent.
d. 10
percent.
14. The system of
third-party payment for medical care in the United States has which of the
following effects in the market for health care?
a. It
improves efficiency in the market.
b. It
causes the marginal social benefit of health care to exceed its marginal social
cost.
c. It
causes the marginal social cost of health care to exceed its marginal social
benefit.
d. It
results in less than the efficient quantity of health care services.
15. Which of the
following is true about the Medicare program in the United States?
a. It
is only available to those who pass a means test.
b. It
is available to all citizens over the age of 65.
c. The
costs are completely financed by fees paid by insurees.
d. It
places no limits on reimbursement to medical care providers.
16. What would be
the effect of having no health insurance available?
a. The
quantity of healthcare would be set at where the marginal benefit and marginal
cost are equal.
b. Excess
demand for healthcare would be the result because the quantity supplied would be
at a level where the marginal benefit exceeds the marginal cost.
c. Excess
supply for healthcare would be the result because the quantity supplied would
be at a level where the marginal benefit would be below the marginal cost.
d. the
quantity of healthcare would be at an inefficient level.
17. The elderly
are what proportion of beneficiaries of Medicare?
a. 95%
b. 85%
c. 77%
d. 70%
18. What is the
moral hazard associated with third party payment for health services?
a. The
recipient of the service is not as informed as the provider of the service.
b. The
recipient of services tends to decline more services than they should.
c. The
recipient of services tends to have more services than what is needed relative
to the efficient level of services.
d. There
is no moral hazard.
19. Which is not
reason for excalating healthcare costs in the U.S.?
a. Increase
in malpractice insurance.
b. Cross-subsidization
of patients who cannot pay for healthcare or insurance.
c. Overuse
of new technology.
d. Both
(b) and (c).
20. If the
quantity of healthcare is more than the efficient quantity, what is the
consequence?
a. Some
will not have access to healthcare that would have access at the efficient
level.
b. The
healthcare will suffer in quality.
c. Capital
could be more efficiently spent elsewhere leading to less overall productivity.
d. Lower
marginal costs and marginal benefits.
ECO 450 Week 7 Quiz
Chapter 10
Introduction
to
Government Finance
Government Finance
True/False
Questions
1. Taxes
simultaneously ration and finance government goods and services.
2. The federal
government finances only half of its expenditures with taxes.
3. The benefit
principle argues that the means of financing government goods and services
should be linked to the benefits received from those goods and services.
4. Horizontal equity is achieved when individuals of
the same economic capacity pay the same amount of taxes over a given
period.
5. A flat-rate
income tax is a proportional tax on an income base.
6. The marginal
tax rate will eventually exceed the average tax rate if the tax rate structure
is proportional.
7. The marginal tax rate for a payroll tax is 7
percent on all wages up to $60,000 per year. The marginal tax rate for
wages in excess of $60,000 per year is zero. The payroll tax is therefore a
regressive tax.
8. Tax evasion
would be less of a problem if tax rates were lowered.
9. The user
charge for a congestible public good should be zero at all times.
10. Zero prices
for price-excludable government services provide benefits only to the
poor.
11. The gasoline
tax is an example of a general tax on consumption.
12. For a proportional
tax, the marginal tax rate is always equal to the average tax rate.
13. Tax avoidance
is an illegal activity in the United States.
14. An increase in
marginal tax rates is likely to increase tax evasion.
15. Most studies
indicate that state-run lotteries are equivalent to a progressive tax on
gambling.
16. Government activity requires the
reallocation of resources from government to private use.
17. A flat income tax (i.e. a fixed
amount paid by every taxpayer) is an example of a selective tax.
18. The average tax rate and marginal tax
rate are the same under a progressive tax rate structure.
Multiple Choice Questions
1. According to
the benefit principle,
a. taxes
should be distributed according to ability to pay.
b. user
charges are an ideal source of finance for government goods and services.
c. the
progressive income tax represents the ideal way of distributing taxes among
citizens.
d. flat-rate
taxes are always the best kind.
2. If horizontal
equity is achieved in taxation,
a. vertical
equity will also be achieved.
b. individuals
of equal economic capacity will pay equal taxes.
c. a
flat-rate tax will be used.
d. the
tax system will not result in losses in efficiency in markets.
3. The tax base
of a payroll tax is:
a. consumer
expenditures.
b. interest
income.
c. labor
income.
d. both
(b) and (c)
4. A 5-percent
retail sales tax on all consumer purchases in a state is imposed. The sales tax
is:
a. a
flat-rate tax.
b. a
tax with a regressive rate structure.
c. levied
on an income base.
d. all
of the above
5. A tax on the
value of real estate holdings is a:
a. selective
tax on wealth.
b. general
tax on wealth.
c. general
tax on income.
d. selective
tax on income.
6. An excise tax
is a:
a. general
consumption tax.
b. selective
consumption tax.
c. general
wealth tax.
d. selective
tax on wealth.
7. A proportional income tax has
an average tax rate that:
a. always
is less than the marginal tax rate.
b. always
exceeds the marginal tax rate.
c. equals
the marginal tax rate at first and then becomes less than the marginal tax
rate.
d. always
equals the marginal tax rate.
8. A payroll tax
taxes a worker’s wages at 14 percent until the worker earns $60,000 per year.
All labor earnings in excess of $60,000 are not subject to tax. The tax rate
structure of the payroll tax is therefore:
a. proportional.
b. progressive.
c. regressive.
d. flat-rate.
9. A bridge
becomes congested after 100 vehicles per hour use it on any day. To achieve
efficiency, a toll:
a. that
charges all users of the bridge, no matter how many vehicles use it per hour,
should be imposed.
b. on
additional users in excess of 100 per hour should be imposed.
c. on
all users should be imposed, if more than 100 users per hour are expected.
d. is
not required.
10. A government
prints money to finance its expenditures. As a result,
a. the
economy can operate at a point outside its production possibility curve.
b. inflation
will occur.
c. consumers
will give up private goods to finance the increased government expenditures.
d. both
(b) and (c)
11. Taxes are
likely to affect:
a. market
equilibrium.
b. political
equilibrium.
c. the
distribution of income.
d. all
of the above
12. Taxes:
a. are
voluntary payments to governments.
b. are
unlikely to affect market supply and demand.
c. never
affect efficiency in the allocation of resources.
d. are
compulsory payments associated with certain activities.
13. A tax on real
estate is a:
a. general
wealth tax.
b. general
consumption tax.
c. selective
wealth tax.
d. selective
income tax.
14. The marginal
tax rate will eventually exceed the average tax rate for a:
a. proportional
tax.
b. regressive
tax.
c. progressive
tax.
d. flat-rate
tax.
15. Marginal tax
rates were reduced in 2001. Other things being equal, this is likely to:
a. increase tax evasion.
b. decrease tax evasion.
c. have no effect on tax evasion.
d. increase tax avoidance.
16. What
is an example of a normative criterion that a government must trade-off in its
method of
taxation?
a. Equity
b. Efficiency
c. Administrative ease
d. all of the above
17. Tax
avoidance is:
a. a means of tax evasion.
b. a means of decreasing taxes paid by adjusting
behavior.
c. a political process explicitly for the
reduction of taxation.
d. a means to avoid tax owed.
18. If the
marginal tax rate is 20% under a proportional tax rate structure, the average
tax rate:
a. should be 20%.
b. should be above 20%.
c. should be below 20%.
d. cannot be determined.
19. If the
average tax rate under a progressive tax rate structure is 35%, a possible
marginal tax rate is:
a. 30%.
b. 25%.
c. 42%.
d. not able to be determined.
20. Which of
the following countries has the highest average tax rate relative to GDP?
a. Japan
b. Sweden
c. Iceland
d. United Kingdom
ECO 450 Week 8 Quiz
Chapter 11
Taxation,
Prices, Efficiency,
and the Distribution of Income
and the Distribution of Income
True/False Questions
1. A lump-sum tax
results in both income and substitution effects.
2. A consumer
currently pays $500 a year retail sales taxes. She would be better off if she
paid the same amount annually as a lump-sum tax.
3. Clothing is
sold in perfectly competitive markets where no externalities prevail. An excise
tax on clothing will result in a market price for clothing that equals the
marginal social benefit and marginal social cost of service.
4. Assuming that
the income effects are negligible and that beer is sold in a competitive
market, a 10‑cent per can tax on beer that causes a 10,000 can per month
decline in sales will result in an excess burden of $1,000 per month.
5. A tax on land
results in an income effect on landlords but no substitution effect. Then it
follows that the excess burden of a tax on land will be zero.
6. The excess
burden of a tax on interest income is $5 billion per year. Total interest
income per year is $50 billion. The tax currently collects $15 billion in
revenue per year. The efficiency-loss ratio of the tax is therefore
0.33.
7. A payroll tax
results in a difference between the gross wages paid by employers and the net
wages received by workers.
8. If the market
supply of labor services is perfectly inelastic, a tax on labor income will
reduce the net wages received by workers by the full amount of the tax per
labor hour.
9. If a $10 per
unit tax is levied on the output of a monopolist, more of that tax will be
shifted to consumers than would be the case if the same good were produced by
a competitive industry.
10. A study indicates that taxes in the United States
reduce the Gini coefficient for the nation by 10 percent. This implies
that taxes make the income distribution more equal.
11. A lump-sum tax
only results in income effects.
12. An income tax
is an example of a price-distorting tax.
13. The more
price-elastic the demand of a taxed item, the lower the excess burden of a tax
on the sale of that item.
14. If the tax on the sale of gasoline is doubled from
20 cents per gallon to 40 cents per gallon, the excess burden of the tax
will quadruple.
15. If the
compensated elasticity of supply of labor is zero, then a tax on labor earnings
will have zero excess burden.
16. Lump-sum taxes do not prevent prices from equaling the
marginal social cost and benefit of any goods and services.
17. Lump-sum taxes can vary in amount based on income
level.
18. A
lump-sum tax can distort prices and affect consumption behavior.
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