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Public Finance 9Th Edition Gayer Test Bank Full Chapter PDF
Public Finance 9Th Edition Gayer Test Bank Full Chapter PDF
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Chapter 11
Social Security
Multiple Choice
5. When workers save less during their working lives due to the fact that they have been paying Social
Security taxes, this is known as
A) the Social Security effect.
B) the wealth substitution effect.
C) the bequest effect.
D) the life cycle hypothesis.
Ans: b
6. Carve-out accounts
A) applies only to workers between 65 and 69 years of age.
B) take funds away from the traditional social security system.
C) has a tax rate of no more than 16.9 percent.
D) does all of the above.
Ans: b
11. Social security taxes are projected to fall short of benefits starting in
A) 2005.
B) 2010.
C) 2017.
D) 2020.
Ans: c
14. In 1970 the Social Security tax rate was ______ and had increased to ______ by 2008.
A) 0.84%; 0.124%
B) 12.4%; 8.4%
C) 8.4%; 12.4%
D) 84%; 124%
Ans: c
15. A current worker may save more towards retirement so that he or she will have more to leave his or
her children later. This altruistic motive is known as the
A) altruism effect.
B) bequest effect.
C) income effect.
D) savings effect.
Ans: b
True/False
16. Broadly speaking, Social Security redistributes incomes from high- to low- income individuals, from
men to women, and from young to old.
A) True
B) False
C) Uncertain
Ans: a
17. The percentage of retired older workers has increased dramatically since the introduction of Social
Security.
A) True
B) False
C) Uncertain
Ans: a
18. Social Security benefits have played an important role in the improved economic status of the elderly
over time.
A) True
B) False
C) Uncertain
Ans: a
19. Social Security was not designed to provide insurance against outliving one’s retirement.
A) True
B) False
C) Uncertain
Ans: b
20. A pay-as-you-go system of financing Social Security is not as good as a fully funded system.
A) True
B) False
C) Uncertain
Ans: c
23. Average indexed monthly earnings are derived from the worker’s earnings history and determine the
primary insurance amount (PIA).
A) True
B) False
C) Uncertain
Ans: a
24. Having a Social Security program makes people less inclined to save for their own retirement.
A) True
B) False
C) Uncertain
Ans: c
25. Social Security wealth is the future value of the Social Security system.
A) True
B) False
C) Uncertain
Ans: b
Essay
26. Suppose in the market for labor that the labor supply curve is perfectly inelastic. This would mean
that the supply curve is vertical. Furthermore, suppose that demand is normal and downward sloping.
Your textbook has explained that unemployment taxes are paid entirely by the employer (demanders).
Who actually pays the tax in the scenario described above?
Ans: The suppliers of labor (employees) would be totally responsible for paying the tax, despite the fact
that the tax was levied on employees.
27. According to the Bureau of Labor Statistics, in the Federal Government, the starting salary for
economists having a bachelor’s degree was $35,752 in 2007. Assume that our economist will get this
government job that offers a 3 percent raise annually. After 5 years of working, she quits and never
works again. How much will this worker have earned over her brief working career? How much will she
have paid in Social Security and Medicare taxes if the tax rate is 7.45 percent?
Ans: The worker will have earned a total of approximately $189,812. She will have paid approximately
$14,141 in taxes.
28. Suppose that the ratio of retirees to working citizens is currently 1 to 5, meaning that there are 5
working people for every retiree. Suppose that in thirty years the ratio will change to 1 to 2. If benefits
remain the same, what will happen to the tax rate assuming retirees are provided benefits in a pay-as-you-
go system? How much would benefits decrease if the tax rate remained the same?
Ans: Initially, a worker paid for 20 percent of a retiree’s benefits. In the future, the same worker would be
responsible for paying for half of a current retiree’s benefits. If benefits remained the same, then each
worker’s tax burden would increase by approximately 30 percent of the cost of benefits. If tax rates
remain the same, then benefits would need to fall by approximately 60 percent.
29. A worker within the middle-income class is preparing to retire. In the year before he retired, his
gross monthly earnings are $2,500. His Social Security benefits will be $1,500 per month. Before he
retired, his income was subject to a tax of 30 percent. Find his before-tax and after-tax replacement rates.
Ans: His before-tax replacement rate would be 1,500/2,500 = 0.60. His after-tax replacement rate would
be 1,500/1,750 = 0.86.
30. Work disincentives in the system of Social Security have seen the number of persons in the program
increase dramatically. What incentives could be put in place to reverse, or at least slow, this trend?
Ans: Increasing the retirement age would see fewer people in the program. Other solutions include
removing the survivor’s benefits and introducing a more stringent wealth threshold that says that those
persons with a certain wealth are not allowed to receive benefits.
31. The Social Security Trust fund actually has no money in it and is filled with IOUs. Does this
information impact your thinking regarding Social Security?
Ans: It should, if it had not before. The Trust Fund concept needs to be replaced with a system where the
money is not available for any other purpose. If not, contributors should expect higher tax rates and
probably lower levels of services.
32. Do you feel that when you retire there will still be Social Security? If so, do you feel that benefits
will be at present levels or tax rates will have increased? Finally, has this discussion changed your plans
regarding your own personal savings for your retirement?
Ans: This is a personal question, but as recently as August 2004, the current chairman of the Federal
Reserve, Alan Greenspan, has warned that benefits will need to be reduced for future recipients or that
there will need to be increases in taxes. Many working adults today are changing their saving patterns
because of this outlook.
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By Permission of] [W. Canning & Co.
Röntgen rays are produced when the cathode rays fall upon, and
as it were bombard, an obstacle of some kind. Almost any tube
producing cathode rays will produce also Röntgen rays, but special
forms of tube are used when the main object is to obtain these latter
rays. Fig. 38 shows a typical form of simple X-ray tube. This, like all
other tubes for X-ray work, is exhausted to a rather higher vacuum
than tubes intended for the production of cathode rays only. The
cathode C is made of aluminium, and is shaped like a saucer, its
curvature being arranged so that the cathode rays are focused on to
the anti-cathode A. The focusing as a rule is not done very
accurately, for although sharper radiographs are obtained when the
cathode rays converge exactly to a point on the anti-cathode, the
heating effect at this point is so great that a hole is quickly burned.
The target, or surface of the anti-cathode, is made of some metal
having an extremely high melting-point, such as platinum, iridium, or
tungsten. It has a flat surface inclined at an angle of about 45°, so
that the rays emanating from it proceed in the direction shown by the
dotted lines in the figure. The continuous lines show the direction of
the cathode rays. The anode is made of aluminium, and it is shown
at N. It is not necessary to have a separate anode, and the anti-
cathode may be used as the anode. In the tube shown in Fig. 38 the
anode and the anti-cathode are joined by an insulated wire, so that
they both act as anodes. The tube is made of soda-glass, as the X-
rays do not pass at all readily through lead-glass.
PLATE XIV.