Review Questions

What is meant by a means tested government program?

What is an in-kind program?

Compare the size of means tested and non-means tested programs.

Know which of the larger redistribution programs are means tested and which aren’t.

What is the moral hazard problem that income redistribution programs must contend with?

What is the economic argument favoring cash subsidies versus in-kind benefits?

What is the economic argument favoring in-kind benefits versus cash subsidies?

What is meant by a fully funded pension?

What is meant by a pay-as-you-go system?

What are some of the demographic, economic changes that are taking place that will strain the social security system in the future?

Define rate of return to a pension.

What are some of the problems related to relying on markets to allocate health care?

How does insurance change the marginal cost of the decision to consume health care?

What does adverse selection mean in its application to health care?

Define marginal and average tax rates. How are they calculated?

Define progressive, regressive and flat tax systems.

Define the deadweight loss of a tax.

Define the interest rate and its role in the market for loanable funds.

Define crowding out.

Distinguish between deficits and debt.

Explain why the three provisions within the recent health care law should go together.

A. A mandate that every adult indicate that he (she) and his (her) dependents have health insurance.

B. Insurance companies are no longer allowed to use an applicant’s existing health condition in deciding on insuring the person.

C. Insurance companies are no longer able to set premiums for individual cases based on expected cost. Insurance firms are allowed to set single premiums only for broadly defined categories of customers.