ECON 441 Test 2

T/F In calculating the official poverty rate, cash transfers to the poor are included in their income, but in-kind transfers are not.

True

T/F Social Security pension benefits are transfers from workers to retirees.

True

T/F The normal retirement age for Social Security old-age pensions is 67 for people born in the United States in 1960 or later.

True

T/F Cash transfers currently account for much less of the total transfers to the poor than in-kind transfers do.

True

Net replacement rate (NRR)

a better measure of the generosity of the pension benefits that is calculated as monthly social security pension benefits divided by monthly labor earnings after payment of taxes in the year prior to retirement

Deductible

a certain amount of health care expenditure to be incurred first by the patients, as required by a typical insurance plan, before the plan starts paying benefits

Supplemental Nutrition Assistance Program (SNAP)

a federally financed subsidy program that began in 1071. Under this program administered by state governments, recipients receive electronic benefit transfer (EBT) cards that can be redeemed for food and related items at stores

Medicare

a health insurance plan, under which the elderly are covered by hospitalization insurance, which is financed by a special payroll tax amounting to a combined rate of 2.9 percent for employees in 2012 on all labor income

Earned Income Tax Credit (EITC)

a payment from the IRS to workers with dependent children and some single workers equal a certain percentage of wage and salary income to those eligible

Fully funded pension system

a pension system in which benefits are paid out of a fund built up from contributions by, or on behalf of members in a retirement system

Pay-as-you-go pension system

a pension system that finances pensions for retired workers in a given year entirely by contributions or taxes paid by currently employed workers

Medicaid

a program that provides vents for most of those eligible for TANF and SSI cash subsidies and other who pass a means test

Asymmetric information

a situation in which one side of the market has more reliable information than the other side, the specialization and division of knowledge, as applied to any economic trade

Old-age, Survivors, and Disability Insurance (OASDI)

a tax financed pension system under which retirement benefits are financed through taxed levied on the working population

Temporary Assistance to Needy Families (TANF)

a welfare assistance program that provides family support payments on a temporary and limited basis through grants to state governments, which in turn determine eligibility by income and conditions for receiving welfare payments

Gross replacement rate (GRR)

a worker's monthly retirement benefits divided by monthly earnings in the year prior to retirement

Status test

ensures that those falling under into demographic categories belong to one of the particular groups that is eligible for poverty relief

Means Test

establishes that those passing the status test also have incomes or asset levels that are below the minimally required amounts to be eligible for aid

in-kind Benefits

noncash benefits that increase the quantities of certain goods and services that will be consumed by the recepiants

Third-party payments

payments made by third party that finance the system of health care provision in the U.S., where the third party is neither the purchaser nor the seller of the service

Social Security and insurance programs

programs benefiting diverse groups of citizens including government provided pensions, disability payments, unemployment compensation and health benefits

Earnings test

reduces Social Security benefits by $1 for each $2 of earnings over a certain maximum amount of earnings that is adjusted each year when they retire before they reach their full retirement age

Tax-financed pension system

social security retirement program in which retirement benefits are financed through taxes levied on the working population

Coinsurance

the amount paid as an out-of-pocket cost by the individual, which varies from (insurance) plan to plan but is typically 20% of the cost. The insurance plan pays the remaining 80% of covered expenses (after patient incurs the deductible expense of the plan)

Moral hazard (of health insurance)

the increase in the incentive to consume and supply health care services that results from the reduction in price to consumers when third parties pay the bulk of medical expenses

poverty threshold

the level of income below which a household is classified as poor in the US

Risk averse

the preference to incur a certain modest cost for insurance rather than risk high costs as a result of an unforeseen prospect

Entitlement Programs

transfer programs that require payments to all those people meeting eligibility requirements established by law

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).

A

Under Temporary Assistance to Needy Families (TANF), A.) federal spending is capped and is allocated to states as a block grant. B.) federal spending is an open-ended entitlement program that requires federal payments to all eligible recipients who meet means and status tests. C.) the states do not determine eligibility and benefit levels; instead, the federal government sets these levels as national standards. D.) recipients are not required to work and will receive benefits as long as they meet a means test.

A

Supplemental Security Income (SSI)

A federally funded and operated program that provides cash transfers to the aged, the blind, and the disabled who pass a means test

A welfare recipient receives a cash transfer of $100/week. This grant is not reduced if the recipient earns less than $20/week. However, after the recipient earns more than $20/week, the grant is reduced by 66 cents per dollar of earnings. The cash transfer will be reduced to zero if the recipient earns: A.) $151.52/week B.) $171.52/week C.) $131.52/week D.) $100.00/week

B

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.

B

An income guarantee of $10,000/year for all families is established with a phase-out rate of benefits of 50 cents per dollar of earnings. Then it follows that: A.) only families with earnings of less than $10,000/year will receive transfers B.) all families with earnings of less than $20,000/year will receive transfers C.) all families with income less than $30,000/year will receive transfers D.) all families will receive transfers

B

In the United States, the poverty threshold is: A.) the same for all households of a given size independent of the age of the household head. B.) the cost of a minimally accepted diet for persons in the family. C.) three times the cost of a minimally accepted diet for persons in the family, for families with household heads under the age of 65. D.) five times the cost of a minimally accepted diet for persons in the family, for families with household heads under the age of 65.

C

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.

C

he most expensive program of assistance to the poor in the US in recent years has been: A.) TANF B.) Supplemental Nutrition Assistance Program (formerly called food stamps) C.) Medicaid D.) public housing

C

Temporary Assistance to Needy Families (TANF) replaced: A.) no existing programs B.) one existing program C.) two exisiting programs D.) three exisiting programs

D

The Supplemental Nutrition Assistance Program (formerly called food stamps) A.) reduces the market price of food to those eligible for SNAP B.) is likely to increase the market price of food to all consumers C.) is likely to increase food purchases by recipients but not other purchases D.) is likely to increase both food and nonfood purchases by recipients

D

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.

D

Which of the following is true about the Medicaid program in the United States? A.) It is entirely financed by the federal government. B.) It is a means-tested entitlement program that mandates payment for medical services, mainly to those with low incomes. C.) It is jointly financed by the federal and state governments and is absorbing a significant share of the state government budgets. D.) both (b) and (c)

D

Why rely on the government to aid the poor rather than private charities? A.) The government can establish uniform standards for eligibility B.) Voluntary donations will most likely be inadequate. C.) The government will most likely be able to meet all needs to the satisfaction of all citizens. D.) Both (a) and (b)

D

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)

E

T/F Social Security was created in 1965.

False

T/F The Social Security pension system is a fully funded retirement plan.

False

T/F 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.

False

T/F Less than one-third of the people classified as poor in the United States are children.

False

T/F The Earned Income Tax Credit (EITC) is a way of subsidizing those who are unable to work and have no earnings.

False

T/F The poverty threshold is independent of the size of a family and the age of a household head

False