Public Finance In Canada 5th Canadian Edition By Harvey S Rosen – Test Bank

File: Chapter 11 Test Bank
Multiple Choice
[QUESTION]
1. A pay-as-you-go system is
A. less politically popular than a fully funded system for the first generation of retirees.
B. where current working citizens pay for current retired citizens.
C. where there is no need for taxes since current workers pay for current retirees.
D. where retirees are paid from accounts that have accumulated with interest over their working lives.
Ans: B
Topic: 11-01
Blooms: Remember
Difficulty: Easy

[QUESTION]
2. Consumption smoothing is
A. reducing consumption in high-earning years in order to increase consumption in low-earning years.
B. consuming the same amount throughout your lifetime.
C. increasing consumption in high-earning years in order to offset decreased consumption in low-earning years.
D. unnecessary because individuals receive public pensions in retirement.
Ans: A
Topic: 11-01
Blooms: Remember
Difficulty: Easy

[QUESTION]
3. A fully funded plan
A. is more politically popular than a pay-as-you-go plan with the first generation of retirees.
B. requires current working citizens to pay for current retired citizens.
C. requires no taxes since current workers pay for current retirees.
D. is where retirees are paid from accounts that have accumulated with interest over their working lives.
Ans: D
Topic: 11-01
Blooms: Understand
Difficulty: Moderate

[QUESTION]
4. Pensions and annuities that account for inflation are said to be
A. inflation adjusted.
B. inflation accounted.
C. inflation indexed.
D. inflation rated.
Ans: C
Topic: 11-01
Blooms: Remember
Difficulty: Easy

[QUESTION]
5. When workers save less during their working lives due to the fact that they have been contributing to their public pension, this is known as
A. the public pension wealth effect.
B. the wealth substitution effect.
C. the bequest effect.
D. the life cycle model.
Ans: B
Topic: 11-02
Blooms: Remember
Difficulty: Easy

[QUESTION]
6. Some young people may decide not to save for old age, gambling that they will supported by the public sector when they retire. This is an example of
A. adverse selection.
B. moral hazard.
C. strategic thinking.
D. consumption smoothing.
Ans: B
Topic: 11-01
Blooms: Remember
Difficulty: Easy

[QUESTION]
7. The Guaranteed Income Supplement is an example of
A. a negative income tax.
B. the retirement effect.
C. a regressive tax.
D. the wealth substitution effect.
Ans: A
Topic: 11-07
Blooms: Remember
Difficulty: Easy

[QUESTION]
8. Pay-as-you-go financing is an attractive method of financing pensions if total wages and salaries grow ________ the rate of return.
A. faster than
B. slower than
C. at the same rate as
D. inversely to
Ans: A
Topic: 11-01
Blooms: Remember
Difficulty: Easy

[QUESTION]
9. In 2013-14, the Old Age Security program and Canada and Quebec Pension Plan had a combined cost of approximately
A. $100 million.
B. $100 billion.
C. $100 trillion.
D. none of these answers is correct.
Ans: D
Topic: 11-01
Blooms: Remember
Difficulty: Easy

[QUESTION]
10. The age of eligibility to receive Old Age Security is
A. 55.
B. 65.
C. 67.
D. 72.
Ans: B
Topic: 11-07
Blooms: Remember
Difficulty: Easy