Question 1

If people can borrow and lend to perfectly smooth out their lifetime living standards, then

Accepted Answer

A)  transitory income is a good measure of the distribution of living standards. 
B)  none of these answers. 
C)  permanent income is a good measure of the distribution of living standards. 
D)  life-cycle income is a good measure of the distribution of living standards. 
E)  current annual income is a good measure of the distribution of living standards. 
A)  transitory income is a good measure of the distribution of living standards. 
B)  none of these answers. 
C)  permanent income is a good measure of the distribution of living standards. 
D)  life-cycle income is a good measure of the distribution of living standards. 
E)  current annual income is a good measure of the distribution of living standards. C

Question 2

John Rawls argues that economic justice would result if society chose a set of rules for the redistribution of income from behind a "veil of ignorance" and he argues that the set of rules would be the maximin criterion.

Accepted Answer

A) True 
 B)False  False

Question 3

Because people's incomes vary over the life cycle and because there are transitory shocks to people's incomes, the standard measures of income distribution

Accepted Answer

A)  exaggerate the inequality of living standards. 
B)  could exaggerate or understate the inequality of living standards depending on whether the transitory shocks are positive or negative. 
C)  understate the inequality of living standards. 
D)  accurately represent the true inequality of living standards. 
A)  exaggerate the inequality of living standards. 
B)  could exaggerate or understate the inequality of living standards depending on whether the transitory shocks are positive or negative. 
C)  understate the inequality of living standards. 
D)  accurately represent the true inequality of living standards. A

Question 4

Figure 2  
-Refer to figure 2. The Gini coefficient is

Accepted Answer

A)  zero 
B)  one 
C)  Less than 0.3 but higher than 0 
D)  Over 0.7 but less than 1 
A)  zero 
B)  one 
C)  Less than 0.3 but higher than 0 
D)  Over 0.7 but less than 1

Question 5

The poverty trap refers to

Accepted Answer

A)  a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more income for themselves and their families because doing so will mean they have to pay back the benefits they have previously received. 
B)  a situation in which workers are unable to find jobs. 
C)  a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more income for themselves and their families because doing so will reduce the amount of benefit income to which they are entitled and increase the amount of tax they must pay. 
D)  a situation in which those receiving state benefits are discriminated against by employers and so find it more difficult to find jobs. 
A)  a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more income for themselves and their families because doing so will mean they have to pay back the benefits they have previously received. 
B)  a situation in which workers are unable to find jobs. 
C)  a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more income for themselves and their families because doing so will reduce the amount of benefit income to which they are entitled and increase the amount of tax they must pay. 
D)  a situation in which those receiving state benefits are discriminated against by employers and so find it more difficult to find jobs.

Question 6

Assume that the government proposes a negative income tax that calculates taxes owed by the following formula,
Taxes Owed = (1/3 x Income) - €10,000.
Compute the tax that would be owed given each level of income.
a. €120,000
b. €90,000
c. €60,000
d. €30,000
e. €0

Accepted Answer

a. €30,000
b. €20,000
c. €10,0

Question 7

Susan had a big win at the casino on her birthday. The money she won is considered to be

Accepted Answer

A)  permanent income. 
B)  life-cycle income. 
C)  transitory income. 
D)  an in-kind transfer. 
A)  permanent income. 
B)  life-cycle income. 
C)  transitory income. 
D)  an in-kind transfer.

Question 8

A libertarian would be likely to argue that

Accepted Answer

A)  equality of outcomes in a society does not matter; it's the fairness of the processes that lead to those outcomes that matters. 
B)  equality of opportunities is more important than equality of incomes. 
C)  the government should not redistribute resources from some individuals to others. 
D)  all of the above. 
A)  equality of outcomes in a society does not matter; it's the fairness of the processes that lead to those outcomes that matters. 
B)  equality of opportunities is more important than equality of incomes. 
C)  the government should not redistribute resources from some individuals to others. 
D)  all of the above.

Question 9

The maximin criterion suggested by John Rawls's theory of justice means that the government should aim to

Accepted Answer

A)  maximize the total utility of society. 
B)  maximize the well-being of the worst-off person in society. 
C)  minimize the difference between the rich and poor. 
D)  maximize the economic freedom of individuals by minimizing government interference in private decision making. 
E)  minimize the well-being of the best-off person in society. 
A)  maximize the total utility of society. 
B)  maximize the well-being of the worst-off person in society. 
C)  minimize the difference between the rich and poor. 
D)  maximize the economic freedom of individuals by minimizing government interference in private decision making. 
E)  minimize the well-being of the best-off person in society.

Question 10

Current anti-poverty programs discourage work because

Accepted Answer

A)  benefits are reduced at such a high rate when recipients earn more income that there is little or no incentive to work once one is receiving benefits. 
B)  in order to be eligible for benefits, a recipient cannot have a job. 
C)  they make recipients more comfortable than most middle-class citizens. 
D)  anti-poverty programs attract naturally lazy people to begin with. 
A)  benefits are reduced at such a high rate when recipients earn more income that there is little or no incentive to work once one is receiving benefits. 
B)  in order to be eligible for benefits, a recipient cannot have a job. 
C)  they make recipients more comfortable than most middle-class citizens. 
D)  anti-poverty programs attract naturally lazy people to begin with.

Question 11

Figure 1  
-Refer to figure 1. The red line refers to

Accepted Answer

A)  The Gini coefficient 
B)  The Lorenz curve 
C)  The line of perfect inequality 
D)  The line of perfect equality 
A)  The Gini coefficient 
B)  The Lorenz curve 
C)  The line of perfect inequality 
D)  The line of perfect equality

Question 12

Because in-kind transfers are not accounted for in standard measures of income distribution, the standard measures of income distribution

Accepted Answer

A)  accurately represent the true inequality of living standards. 
B)  understate the inequality of living standards. 
C)  exaggerate the inequality of living standards. 
D)  could exaggerate or understate the inequality of living standards depending on whether the transfers are goods or services. 
A)  accurately represent the true inequality of living standards. 
B)  understate the inequality of living standards. 
C)  exaggerate the inequality of living standards. 
D)  could exaggerate or understate the inequality of living standards depending on whether the transfers are goods or services.

Question 13

John Rawls's maximin criterion does not mean that there should be redistribution so as to equalize everyone's incomes in society because

Accepted Answer

A)  such redistribution would mean that those who worked hard were no better off than those who were lazy and this would be unfair. 
B)  such redistribution would not maximize the total income of all members of society. 
C)  such redistribution would remove the incentive to work hard, so society's total income would fall, and so the least well off person would be worse off than they could be under a system in which there was some inequality in income. 
D)  such redistribution would amount to confiscation of honestly earned income from higher earners and so would be unjust. 
A)  such redistribution would mean that those who worked hard were no better off than those who were lazy and this would be unfair. 
B)  such redistribution would not maximize the total income of all members of society. 
C)  such redistribution would remove the incentive to work hard, so society's total income would fall, and so the least well off person would be worse off than they could be under a system in which there was some inequality in income. 
D)  such redistribution would amount to confiscation of honestly earned income from higher earners and so would be unjust.

Question 14

The philosopher John Rawls argued that

Accepted Answer

A)  people would choose income equality if they had to determine an economic distribution system before knowing their place in it. 
B)  people would choose income inequality to allow the maximum use of their individual talents. 
C)  government has a role to ensure income equality to prevent social unrest. 
D)  people would choose income equality because it is morally right. 
A)  people would choose income equality if they had to determine an economic distribution system before knowing their place in it. 
B)  people would choose income inequality to allow the maximum use of their individual talents. 
C)  government has a role to ensure income equality to prevent social unrest. 
D)  people would choose income equality because it is morally right.

Question 15

Libertarians are more concerned with equal opportunity than with equal outcome.

Accepted Answer

A) True 
 B)False

Question 16

John Rawls's suggestion that policy should be directed at maximizing the welfare of the least well off person in society is derived from

Accepted Answer

A)  the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that as long as there is no theft then there is no need for governments to intervene and redistribute income. 
B)  the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that people will then be particularly concerned about the possibility that they might find themselves at the bottom of the income distribution. 
C)  the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the ignorant people should be looked after. 
D)  the idea that everyone in society should have an equal income. 
A)  the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that as long as there is no theft then there is no need for governments to intervene and redistribute income. 
B)  the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that people will then be particularly concerned about the possibility that they might find themselves at the bottom of the income distribution. 
C)  the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the ignorant people should be looked after. 
D)  the idea that everyone in society should have an equal income.

Question 17

Explain how a "leaky bucket" can be used to illustrate the utilitarian argument that governments should not attempt to completely equalize individual incomes.

Accepted Answer

Utilitarians reject complete equalizatio

Question 18

Compare and contrast the "life cycle" hypothesis and the "permanent income" hypothesis. What are their respective implications for inequality in the income distribution?

Accepted Answer

Life-cycle variation in income suggests

Question 19

It is more efficient for the government to provide in-kind transfers instead of cash payments.

Accepted Answer

A) True 
 B)False

Question 20

Explain what is meant by "in-kind transfer" programs. Briefly outline the advantages and disadvantages of an in-kind transfer program.

Accepted Answer

An in-kind transfer program distributes

Exam 18: Income Inequality and Poverty

If people can borrow and lend to perfectly smooth out their lifetime living standards, then

John Rawls argues that economic justice would result if society chose a set of rules for the redistribution of income from behind a "veil of ignorance" and he argues that the set of rules would be the maximin criterion.

Because people's incomes vary over the life cycle and because there are transitory shocks to people's incomes, the standard measures of income distribution

Figure 2 -Refer to figure 2. The Gini coefficient is

The poverty trap refers to

Assume that the government proposes a negative income tax that calculates taxes owed by the following formula, Taxes Owed = (1/3 x Income) - €10,000. Compute the tax that would be owed given each level of income. a. €120,000 b. €90,000 c. €60,000 d. €30,000 e. €0

Susan had a big win at the casino on her birthday. The money she won is considered to be

A libertarian would be likely to argue that

The maximin criterion suggested by John Rawls's theory of justice means that the government should aim to

Current anti-poverty programs discourage work because

Figure 1 -Refer to figure 1. The red line refers to

Because in-kind transfers are not accounted for in standard measures of income distribution, the standard measures of income distribution

John Rawls's maximin criterion does not mean that there should be redistribution so as to equalize everyone's incomes in society because

The philosopher John Rawls argued that

Libertarians are more concerned with equal opportunity than with equal outcome.

John Rawls's suggestion that policy should be directed at maximizing the welfare of the least well off person in society is derived from

Explain how a "leaky bucket" can be used to illustrate the utilitarian argument that governments should not attempt to completely equalize individual incomes.

Compare and contrast the "life cycle" hypothesis and the "permanent income" hypothesis. What are their respective implications for inequality in the income distribution?

It is more efficient for the government to provide in-kind transfers instead of cash payments.

Explain what is meant by "in-kind transfer" programs. Briefly outline the advantages and disadvantages of an in-kind transfer program.

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Interdependence and the Gains From Trade

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

Issues in Financial Markets

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Supply-Side Policies

Common Currency Areas and European Monetary Union

The Financial Crisis and Sovereign Debt

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