Question 1

Economic theory tells us that inequality in income is unfair if differences in opportunity leads to inequality of income.

Accepted Answer

A) True 
 B)False

Question 2

Refer to the graph shown.   The middle quintile (the middle fifth) of families earn:

Accepted Answer

A)  10.7 percent of the income. 
B)  15.3 percent of the income. 
C)  22.1 percent of the income. 
D)  32.6 percent of the income. 
A)  10.7 percent of the income. 
B)  15.3 percent of the income. 
C)  22.1 percent of the income. 
D)  32.6 percent of the income.

Question 3

Which of the following Gini coefficients represents the income distribution closest to being equal?

Accepted Answer

A)  0.02 
B)  0.10 
C)  0.50 
D)  0.98 
A)  0.02 
B)  0.10 
C)  0.50 
D)  0.98

Question 4

One study of the distribution of wealth indicates that the bottom 40 percent of households hold 1 percent or less of total marketable wealth in the United States and the top 1 percent owns close to 40 percent of it. An economist might observe that these data do not include the value of human capital: the value of labor and skills embodied in a person. If we were to include human capital, which of the following people's net worth would change the most?

Accepted Answer

A)  Debra, who recently received a $25,000 bonus from her job that she has spent on an around-the-world trip 
B)  Carol, who has just bought an apartment for $500,000 using savings and bank loans 
C)  Betty, who has just retired but expects to live well because her retirement account is worth $1,000,000 
D)  Alice, who has just completed her education as a medical doctor and now has student loans of $100,000 
A)  Debra, who recently received a $25,000 bonus from her job that she has spent on an around-the-world trip 
B)  Carol, who has just bought an apartment for $500,000 using savings and bank loans 
C)  Betty, who has just retired but expects to live well because her retirement account is worth $1,000,000 
D)  Alice, who has just completed her education as a medical doctor and now has student loans of $100,000

Question 5

When most people talk about believing in equality of income, they mean they believe in equality of:

Accepted Answer

A)  effort for comparably endowed individuals. 
B)  opportunity for comparably endowed individuals. 
C)  after-tax income for comparably endowed individuals. 
D)  before-tax income for comparably endowed individuals. 
A)  effort for comparably endowed individuals. 
B)  opportunity for comparably endowed individuals. 
C)  after-tax income for comparably endowed individuals. 
D)  before-tax income for comparably endowed individuals.

Question 6

SNAP provides:

Accepted Answer

A)  financial assistance to needy families with children under age 19. 
B)  nutritional assistance, often in the form of coupons redeemable at food stores. 
C)  medical assistance for the poor, paid for by the individual states. 
D)  assistance to poor people when emergencies arise that aren't taken care of by any of the other programs. 
A)  financial assistance to needy families with children under age 19. 
B)  nutritional assistance, often in the form of coupons redeemable at food stores. 
C)  medical assistance for the poor, paid for by the individual states. 
D)  assistance to poor people when emergencies arise that aren't taken care of by any of the other programs.

Question 7

All of the following are examples of socioeconomic distribution of income except how much:

Accepted Answer

A)  the top 10 percent of a population gets. 
B)  Black people get relative to white people. 
C)  two-parent households get relative to single-parent households. 
D)  the young get relative to the old. 
A)  the top 10 percent of a population gets. 
B)  Black people get relative to white people. 
C)  two-parent households get relative to single-parent households. 
D)  the young get relative to the old.

Question 8

The three problems with determining whether an equal income distribution is fair include all of the following except:

Accepted Answer

A)  people don't start from equivalent positions. 
B)  people's needs differ. 
C)  income differences and wealth differences are not the same. 
D)  people's efforts differ. 
A)  people don't start from equivalent positions. 
B)  people's needs differ. 
C)  income differences and wealth differences are not the same. 
D)  people's efforts differ.

Question 9

Income is more unequally distributed than wealth in the United States.

Accepted Answer

A) True 
 B)False

Question 10

If there were no income inequality in a nation, its Lorenz curve would be:

Accepted Answer

A)  convex. 
B)  concave. 
C)  an upward-sloping straight line with slope of 1. 
D)  a horizontal line. 
A)  convex. 
B)  concave. 
C)  an upward-sloping straight line with slope of 1. 
D)  a horizontal line.

Question 11

When former president Obama promised to raise taxes only on those whose income exceeds $250,000, he was suggesting the federal tax system be:

Accepted Answer

A)  more progressive. 
B)  less progressive. 
C)  proportional. 
D)  regressive. 
A)  more progressive. 
B)  less progressive. 
C)  proportional. 
D)  regressive.

Question 12

When taxation is proportional, the tax rate an individual pays:

Accepted Answer

A)  remains constant as the individual's income increases. 
B)  increases as the individual's income increases. 
C)  falls as the individual's income increases. 
D)  varies as the individual's income changes. 
A)  remains constant as the individual's income increases. 
B)  increases as the individual's income increases. 
C)  falls as the individual's income increases. 
D)  varies as the individual's income changes.

Question 13

The U.S. income tax is a:

Accepted Answer

A)  progressive tax. 
B)  regressive tax. 
C)  proportional tax. 
D)  singular tax. 
A)  progressive tax. 
B)  regressive tax. 
C)  proportional tax. 
D)  singular tax.

Question 14

When a tax is progressive, the average tax rate:

Accepted Answer

A)  decreases with income. 
B)  is constant with income. 
C)  increases with income. 
D)  first increases with income, then decreases with income. 
A)  decreases with income. 
B)  is constant with income. 
C)  increases with income. 
D)  first increases with income, then decreases with income.

Question 15

The program that redistributes the most money is:

Accepted Answer

A)  Aid to Families with Dependent Children. 
B)  the Department of Housing and Urban Development's housing programs. 
C)  Supplemental Security Income. 
D)  the Social Security system. 
A)  Aid to Families with Dependent Children. 
B)  the Department of Housing and Urban Development's housing programs. 
C)  Supplemental Security Income. 
D)  the Social Security system.

Question 16

The Lorenz curve would be a diagonal line if income were distributed equally.

Accepted Answer

A) True 
 B)False

Question 17

A higher tax rate could result in lower tax revenues if:

Accepted Answer

A)  attempts to avoid or evade taxes increase. 
B)  individuals switch from leisure to labor. 
C)  fewer people qualify for government assistance. 
D)  the tax has no incentive effects. 
A)  attempts to avoid or evade taxes increase. 
B)  individuals switch from leisure to labor. 
C)  fewer people qualify for government assistance. 
D)  the tax has no incentive effects.

Question 18

On its horizontal axis, a Lorenz curve measures:

Accepted Answer

A)  cumulative percentage of family income. 
B)  amount of family income. 
C)  cumulative percentage of families. 
D)  demand of families. 
A)  cumulative percentage of family income. 
B)  amount of family income. 
C)  cumulative percentage of families. 
D)  demand of families.

Question 19

Refer to the graph shown.   A possible explanation for the difference between the distribution of income before taxes and the distribution of income after taxes shown in the graph is that the tax system:

Accepted Answer

A)  is regressive. 
B)  is proportional. 
C)  is progressive. 
D)  does not affect income inequality. 
A)  is regressive. 
B)  is proportional. 
C)  is progressive. 
D)  does not affect income inequality.

Question 20

One study of the distribution of wealth indicates that the bottom 40 percent of households hold 1 percent or less of total marketable wealth in the United States. Which of the following people is most likely to be in the bottom 40 percent?

Accepted Answer

A)  Ann is 29 years old, earns $120,000 a year, has no financial assets, but still has student loans of $4,000. 
B)  Betty is 29 years old, earns $40,000 a year, has $80,000 in a savings account, and has credit card debt of $4,000. 
C)  Carol is 69 years old, is disabled, and is living on Social Security and dividends from her $500,000 of mutual funds. She has no debt. 
D)  Debra is 45 years old, and the only money she gets is $40,000 of rental payments from an apartment building she owns that is worth $250,000. She owes the bank $50,000. 
A)  Ann is 29 years old, earns $120,000 a year, has no financial assets, but still has student loans of $4,000. 
B)  Betty is 29 years old, earns $40,000 a year, has $80,000 in a savings account, and has credit card debt of $4,000. 
C)  Carol is 69 years old, is disabled, and is living on Social Security and dividends from her $500,000 of mutual funds. She has no debt. 
D)  Debra is 45 years old, and the only money she gets is $40,000 of rental payments from an apartment building she owns that is worth $250,000. She owes the bank $50,000.

Exam 18: Who Gets What the Distribution of Income

Economic theory tells us that inequality in income is unfair if differences in opportunity leads to inequality of income.

Refer to the graph shown. The middle quintile (the middle fifth) of families earn:

Which of the following Gini coefficients represents the income distribution closest to being equal?

When most people talk about believing in equality of income, they mean they believe in equality of:

SNAP provides:

All of the following are examples of socioeconomic distribution of income except how much:

The three problems with determining whether an equal income distribution is fair include all of the following except:

Income is more unequally distributed than wealth in the United States.

If there were no income inequality in a nation, its Lorenz curve would be:

When former president Obama promised to raise taxes only on those whose income exceeds $250,000, he was suggesting the federal tax system be:

When taxation is proportional, the tax rate an individual pays:

The U.S. income tax is a:

When a tax is progressive, the average tax rate:

The program that redistributes the most money is:

The Lorenz curve would be a diagonal line if income were distributed equally.

A higher tax rate could result in lower tax revenues if:

On its horizontal axis, a Lorenz curve measures:

Refer to the graph shown. A possible explanation for the difference between the distribution of income before taxes and the distribution of income after taxes shown in the graph is that the tax system:

One study of the distribution of wealth indicates that the bottom 40 percent of households hold 1 percent or less of total marketable wealth in the United States. Which of the following people is most likely to be in the bottom 40 percent?

Economics and Economic Reasoning

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Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

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Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

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Work and the Labor Market

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

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