Boskin Commission Inflation Exercise

The Senate Finance Committee created the Boskin Commission in 1996, which consisted of five prominent economists, to report on any biases in the Consumer Price Index (CPI).The Boskin Commission concluded that the CPIoverstatedinflation by 1.1 percentage points, meaning that if the official CPI stated inflation rate was 3.0%, then the true rate of inflation was 1.9% (3.0%-1.1%) in the eyes of the Boskin Commission.The objective of this application exercise is to ascertain the implications of the Boskin Commission's findings on real wages and Social Security benefits.

Question 7

0.27pts

How would the 1.1 percentage point reduction in the CPI inflation rate revise or change the level of wages in the United States? Were individual's incomes higher or lower than what economists previously had thought under the Bureau of Labor Statistics' (BLS) prior formulation of the CPI?

Group of answer choices

Under the Boskin adjusted data, the real wage in 1980 was $26,405.288.This is much lower than the real wage of $38,867.92 calculated using the BLS data. Therefore, under the Boskin adjusted data wages were much lower than previously thought.This means that if you adjust or tinker with historic inflation rates it will lead to a rewriting of economic history.

There is not enough available information to answer.

The adjustment to the inflation rate would lead to the real wage in 1980 being much higher than previously thought.

Under the Boskin adjusted data, the real wage in 1980 was $26,405.288.This is much lower than the nominal wage of $13,832 calculated using the BLS data. Therefore, under the Boskin adjusted data nominal wages were much lower than previously thought.

Flag question: Question 8

Question 8

0.27pts

The following table lists the current average Social Security benefit for retired workers in 2017 and projected Social Security benefits into the year 2027, based off 2% cost-of-living adjustments (COLAs) that are derived from the inflation rate in the CPI.Fill in and solve the blank spaces in the table.

Question:

What will the Social Security benefit be at the end of 2027 after the 2% COLA is included?

Group of answer choices

$20,545.52

$20,142.66

$402.85

$19,747.71

Flag question: Question 9

Question 9

0.27pts

The following table lists the current average Social Security benefit for retired workers in 2017 and projected Social Security benefits into the year 2027, based off 0.9% cost-of-living adjustments (COLAs) that are based on an inflation rate that is reduced by 1.1 percentage points according to the Boskin Commission recommendations.Fill in and solve the blank spaces in the table.

Question:

What will the Social Security benefit be at the end of 2027 after the 0.9% COLA is included?

Group of answer choices

$18,235.51

$17,751.89

$162.20

$18,072.86

Flag question: Question 10

Question 10

0.27pts

How would the 1.1 percentage point reduction in the CPI inflation rate impact Social Security benefits for retirees?

Group of answer choices

It would reduce retiree's Social Security benefits because they would be receiving lower COLA increases.

It would increase retiree's Social Security benefits because they would be receiving higher COLA increases.

It would lead to an initial reduction in Social Security benefits, but over time they would be increased.

It would lead to an initial increase in Social Security benefits, but over time they would be decreased.

Flag question: Question 11

Question 11

0.3pts

Analyze the difference between the initial Social Security benefits in 2021 under the 2.0% COLA and the 0.9% COLA scenario.Then analyze the difference between the initial Social Security benefits in 2027 under the 2.0% COLA and the 0.9% COLA scenario.

Based on your observations, what can we say about the impact of the COLA reduction as time progresses and retirees are further into retirement?

Group of answer choices

Benefits will be increased dramtically because the economy will grow at a much faster rate.

The reduction in benefits under the 0.9% COLA scheme becomes smaller as time progresses. This means that the reduction in retirees benefits, compared to the 2.0% COLA scenario, would become smaller as time progressed. This would lead to a negligible reduction in living standards for those depending on Social Security benefits as they became older.

The reduction in benefits under the 0.9% COLA scheme becomes larger as time progresses. This means that the reduction in retirees benefits, compared to the 2.0% COLA scenario, would become larger as time progressed. This would lead to a dramatic reduction in living standards for those depending on Social Security benefits as they became older.

It is impossible to tell how it will impact retiree's Social Security benefits.