Which mechanism increases Social Security benefits to reflect inflation?

• A. Automatic Premium Adjustments
• B. Cost-of-Living Adjustment (COLA)
• C. Benefit Freeze
• D. Progressive Taxation

Answer: (B)

The concept being tested is how Social Security benefits stay in line with rising prices. The best answer is the Cost-of-Living Adjustment, or COLA. COLA automatically increases benefits each year based on inflation, so purchasing power isn’t eroded as costs rise. In practice, COLA uses the CPI-W (the Consumer Price Index for Urban Wage Earners and Clerical Workers) to determine the amount; if inflation goes up, benefits go up by roughly that amount starting in January of the next year. If inflation is flat or falls, there may be little or no increase.

Why the other terms don’t fit: Automatic Premium Adjustments isn’t a standard mechanism used to adjust Social Security benefits for inflation. A Benefit Freeze would halt increases and would reduce or stagnate benefits rather than reflect inflation. Progressive Taxation deals with how income is taxed, not how benefit amounts are adjusted for inflation.