Question

7. Suppose you are a social security recipient. In 2006 you receive $600 per month in social security benefits. In October of that year the social security administration announces that the cost of living adjustment for 2007 will be 3.3 percent roughly matching the overall inflation rate.

A.           How much will your 2007 monthly benefit be? ______________

B. In real terms your benefits__________

               A stay the same

B increase

C decrease

Answer 1

(A)

Given, social security benefit in 2006 = $600

An increase in the inflation rate, and hence an adjustment of the cost of living (COLA) = 3.3%

Thus, the new social security benefit for the year 2007 =

3.3% of 600 + 600 = 103.3% of 600 = $619.80

Ans. In 2007, the monthly benefit will be $619.80

(B)

Since the cost of living adjustments is made on the basis of inflation, hence in real terms, the social security benefit will not change.

Abs. (a) stay the same