ch 21 taxes, inflation, and investment strategy

Question 0

real consumption

Answer 0

nominal consumption divided by the price deflator

Question 1

retirement annuity

Answer 1

stream of level cash flows available for consumption during one’s retirement years

Question 2

flat tax

Answer 2

a tax code that taxes all income above some exemption at a fixed rate

Question 3

tax shelters

Answer 3

means by which postpone payment of tax liabilities for as long as possible

Question 4

progressive tax

Answer 4

taxes are an increasing fraction of income

Question 5

defined benefit plan

Answer 5

a pension fund that promises a specified level of income to vested retired employees

Question 6

401k plan

Answer 6

defined contribution pension plans wherein the employer matches the employees contribution up to a set percentage

Question 7

traditional retirement account

Answer 7

contributions to the account and investment earnings are tax sheltered until retirement

Question 8

roth account

Answer 8

contributions are not tax sheltered, but investment earning are tax free

Question 9

social security

Answer 9

federally mandated pension plan established to provide minimum retirement benefits to all workers

Question 10

longevity

Answer 10

remaining life expectancy

Question 11

life annuity

Answer 11

an annuity that matures when you die

Question 12

adverse selection

Answer 12

the tendency for any proposed deal to attract the type of party who would make the deal a losing proposition to the offering party

Question 13

moral hazard

Answer 13

the phenomenon whereby a party to a contract has an incentive to change behavior in a way that makes the contract less attractive to the other party