Social Security Funding Crisis

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What is the primary concern in many countries, particularly developed countries, due to the shrinking working population and increasing old generation?

Inefficient public pension funds

Rise in life expectancy

Insufficient social security benefits

Inability of contributions to meet benefit outlays (correct)

In a Fully Funded system, how are social security benefits determined?

By the contributions made by the working population

By the payoff the government gets in the private credit market (correct)

By the government's discretion

By the accumulated savings in the private pension funds

What is a potential problem with allowing individuals to choose where to invest their social security savings?

They may choose risky assets and expect a government bailout (correct)

They may invest in socially responsible investments

They may choose low-risk assets

They may not invest at all

What is the primary advantage of a Fully Funded system over a Pay-as-you-go system?

It is more stable and sustainable in the long run Signup and view all the answers

What is a potential consequence of insuring retirement accounts, similar to bank deposits?

Managers of the fund will take higher risks for higher returns Signup and view all the answers

What is a factor contributing to the growth of private pension funds?

Increase in income and wealth Signup and view all the answers

In a Pay-as-you-go system, who pays for the social security benefits received by the retired population?

Current working population Signup and view all the answers

What is the primary difference between a Fully Funded system and a Pay-as-you-go system?

Source of funding Signup and view all the answers

In a Fully Funded system, who finances the retirement benefits?

Current employees and employers Signup and view all the answers

What is the purpose of social security programs, such as Pension Funds and Social Security Programs?

To help individuals smooth their consumption over their lifetime Signup and view all the answers

What is the primary advantage of social security programs, according to the permanent income hypothesis?

Lessens the impact of changes in wealth on consumer expenditure Signup and view all the answers

In a Pay-as-you-go system, what happens to the social security benefits received by the retired population if the current working population's income increases?

Benefits increase Signup and view all the answers

What type of information problem arises when would-be borrowers know more about their characteristics than do lenders?

Asymmetric Information Signup and view all the answers

Which of the following is a result of a borrower having an incentive to engage in undesirable activities, making it more likely they won't pay the loan back?

Moral Hazard Signup and view all the answers

What can a lender use to overcome the problem of limited commitment from a borrower?

Collateral Signup and view all the answers

What type of problem occurs when unhealthy people are more likely to seek insurance coverage for their known medical problems?

Adverse Selection Signup and view all the answers

What type of risk does a lender face if a borrower has incentives to engage in undesirable activities?

Moral Hazard Signup and view all the answers

What is the primary purpose of collateral in a loan agreement?

To provide an incentive for the borrower not to default Signup and view all the answers