Question 1

Figure 15-4
  
-Figure 15-4 shows the Lorenz Curve for three countries, I, II, and III. Of the three countries shown,

Accepted Answer

A) country III has the most unequal income distribution. 
B) country II has the most unequal income distribution. 
C) country I has the most unequal income distribution. 
D) country III has the most equal income distribution. 
E) country II has a more equal income distribution than Country I. 
A) country III has the most unequal income distribution. 
B) country II has the most unequal income distribution. 
C) country I has the most unequal income distribution. 
D) country III has the most equal income distribution. 
E) country II has a more equal income distribution than Country I. A

Question 2

Why does the government provide benefits in-kind? Why don't we just give money to low-income people?

Accepted Answer

Benefits in-kind address the paternal aspects of government. The government's general policy is to provide food, shelter, health care, etc. to low-income people and not money, so people can purchase these items themselves. There is a suspicion that these individuals would not use the money to purchase items that they should value and instead would buy items they should value less.

Question 3

Figure 15-2
  
-According to the Lorenz curve shown in Figure 15-2, what percentage of total income is earned by the richest 20 percent of families?

Accepted Answer

A) 20 percent. 
B) 40 percent. 
C) 60 percent. 
D) 80 percent. 
A) 20 percent. 
B) 40 percent. 
C) 60 percent. 
D) 80 percent. B

Question 4

Which of the following is true concerning the distribution of income?

Accepted Answer

A) Various measures of income inequality can be used to objectively determine the fairness of an income distribution. 
B) When the political process is democratic, income transfer programs will redistribute income from the rich to the poor. 
C) The fairness of an income distribution is a normative concept; it cannot be determined objectively by economic criteria. 
D) Income inequality is the fairest method to allocate income. 
A) Various measures of income inequality can be used to objectively determine the fairness of an income distribution. 
B) When the political process is democratic, income transfer programs will redistribute income from the rich to the poor. 
C) The fairness of an income distribution is a normative concept; it cannot be determined objectively by economic criteria. 
D) Income inequality is the fairest method to allocate income.

Question 5

In a market economy,

Accepted Answer

A) there is a fixed economic pie to be divided among individuals. 
B) differences in incomes provide individuals with an incentive to supply resources that are highly valued by others. 
C) a central distributing agency carves up the economic pie and allocates slices to individuals. 
D) both a and b above are true. 
A) there is a fixed economic pie to be divided among individuals. 
B) differences in incomes provide individuals with an incentive to supply resources that are highly valued by others. 
C) a central distributing agency carves up the economic pie and allocates slices to individuals. 
D) both a and b above are true.

Question 6

(I) In 2009, a family of four making $22,050 would be considered living in poverty. (II) The poverty threshold level of income is adjusted for family size and for inflation (price level changes) through time.

Accepted Answer

A) Both I and II are true. 
B) Both I and II are false. 
C) I is true; II is false. 
D) II is true; I is false. 
A) Both I and II are true. 
B) Both I and II are false. 
C) I is true; II is false. 
D) II is true; I is false.

Question 7

It would be more reasonable to use annual income data as an index of economic inequality if all of the households

Accepted Answer

A) filed tax returns and thus all their income were known. 
B) were different with regard to their age and size characteristics. 
C) were more similar with regard to size, age, education, and other major factors that are linked to income. 
D) were more similar with regard to their hair color, height, and weight. 
A) filed tax returns and thus all their income were known. 
B) were different with regard to their age and size characteristics. 
C) were more similar with regard to size, age, education, and other major factors that are linked to income. 
D) were more similar with regard to their hair color, height, and weight.

Question 8

If a family earned $10,000 and, as a consequence, sustained a reduction of $4,000 in government benefits, the family's implicit marginal tax rate would be

Accepted Answer

A) 10 percent. 
B) 40 percent. 
C) 60 percent. 
D) 75 percent. 
A) 10 percent. 
B) 40 percent. 
C) 60 percent. 
D) 75 percent.

Question 9

This year, Bob earned a total of $9,000. As a result, he received $9,000 less in government transfers. Therefore, his implicit marginal tax rate is

Accepted Answer

A) zero. 
B) 25 percent. 
C) 50 percent. 
D) 100 percent. 
A) zero. 
B) 25 percent. 
C) 50 percent. 
D) 100 percent.

Question 10

Which of the following is false about data on the inequality of annual family (or household) incomes?

Accepted Answer

A) The degree of inequality is reduced when transfers and taxes are considered. 
B) The inequality in annual income data understates the true degree of inequality in lifetime income. 
C) Differences in age and family characteristics contribute to the degree of inequality. 
D) The inequality in consumption spending across households is smaller than the inequality in annual income. 
A) The degree of inequality is reduced when transfers and taxes are considered. 
B) The inequality in annual income data understates the true degree of inequality in lifetime income. 
C) Differences in age and family characteristics contribute to the degree of inequality. 
D) The inequality in consumption spending across households is smaller than the inequality in annual income.

Question 11

Compared to those with lower incomes, families with higher incomes are more likely to be headed by a

Accepted Answer

A) person age 65 years and older. 
B) husband and wife team with one but not the other in the labor force. 
C) single-parent. 
D) college graduate. 
A) person age 65 years and older. 
B) husband and wife team with one but not the other in the labor force. 
C) single-parent. 
D) college graduate.

Question 12

The poverty threshold income level is

Accepted Answer

A) adjusted annually for increases in real per capita income. 
B) adjusted annually for changes in prices. 
C) invariant to differences in the size and composition of families. 
D) the highest income level that would leave one in the bottom quintile of income recipients. 
A) adjusted annually for increases in real per capita income. 
B) adjusted annually for changes in prices. 
C) invariant to differences in the size and composition of families. 
D) the highest income level that would leave one in the bottom quintile of income recipients.

Question 13

The sharp reduction in marginal tax rates during the 1980s

Accepted Answer

A) reduced the incentive of high-income Americans to work. 
B) increased the incentive of high-income Americans to utilize tax shelters. 
C) increased the unemployment rate of high-income Americans. 
D) increased the visible income of high-income Americans. 
A) reduced the incentive of high-income Americans to work. 
B) increased the incentive of high-income Americans to utilize tax shelters. 
C) increased the unemployment rate of high-income Americans. 
D) increased the visible income of high-income Americans.

Question 14

In a market economy, individuals have a strong incentive to develop their skills and provide others with resources, goods, and services that they value because these activities generally

Accepted Answer

A) improve the overall efficiency of the economy. 
B) increase aggregate output. 
C) lead to a higher personal income. 
D) provide additional tax revenue for the government. 
A) improve the overall efficiency of the economy. 
B) increase aggregate output. 
C) lead to a higher personal income. 
D) provide additional tax revenue for the government.

Question 15

The poverty threshold income level equals the

Accepted Answer

A) average income of the bottom one-tenth of all income recipients. 
B) cost of an economical and nutritional food plan for a family multiplied by six. 
C) cost of an economical and nutritional food plan for a family multiplied by three. 
D) average income of a family headed by a worker who has been unemployed for six months or more. 
A) average income of the bottom one-tenth of all income recipients. 
B) cost of an economical and nutritional food plan for a family multiplied by six. 
C) cost of an economical and nutritional food plan for a family multiplied by three. 
D) average income of a family headed by a worker who has been unemployed for six months or more.

Question 16

Economic analysis indicates that

Accepted Answer

A) unorganized groups of taxpayers and consumers will be better able to secure redistribution through the political process than well-organized interest groups. 
B) rent-seeking activities are beneficial to a nation's prosperity because they alter public policy. 
C) most income transfers in the United States are directed toward the poor. 
D) market adjustments and competition for transfers will erode much of the gain of transfer recipients. 
A) unorganized groups of taxpayers and consumers will be better able to secure redistribution through the political process than well-organized interest groups. 
B) rent-seeking activities are beneficial to a nation's prosperity because they alter public policy. 
C) most income transfers in the United States are directed toward the poor. 
D) market adjustments and competition for transfers will erode much of the gain of transfer recipients.

Question 17

When there is only a weak link between work effort and reward

Accepted Answer

A) individuals will undertake fewer projects that create income. 
B) taxing the rich and distributing the money to the poor becomes the best way to increase the size of the economic pie. 
C) corporations will profit more. 
D) individuals have a strong incentive to undertake projects that generate income. 
A) individuals will undertake fewer projects that create income. 
B) taxing the rich and distributing the money to the poor becomes the best way to increase the size of the economic pie. 
C) corporations will profit more. 
D) individuals have a strong incentive to undertake projects that generate income.

Question 18

The idea that transfer benefits to the poor encourage behavior that increases the risk of poverty is known as the

Accepted Answer

A) Samaritan's dilemma. 
B) rule of inverse benefits. 
C) implicit marginal tax law. 
D) Smith paradox. 
A) Samaritan's dilemma. 
B) rule of inverse benefits. 
C) implicit marginal tax law. 
D) Smith paradox.

Question 19

The poverty threshold income level is

Accepted Answer

A) an absolute amount that applies to all families equally (i.e., $20,000 household earnings for 2009). 
B) variable with respect to family size and composition. 
C) adjusted once each decade, with the census numbers. 
D) all of the above. 
A) an absolute amount that applies to all families equally (i.e., $20,000 household earnings for 2009). 
B) variable with respect to family size and composition. 
C) adjusted once each decade, with the census numbers. 
D) all of the above.

Question 20

Assume that Peter is a single parent who is in poverty. He receives food stamps and Medicaid. For every $100 that he earns, Peter loses $35 of his food stamp benefits and $20 in his Medicaid benefits. Also, Peter's income is taxed at a rate of 10 percent. Then, Peter's effective marginal tax rate is

Accepted Answer

A) 45 percent. 
B) 55 percent. 
C) 65 percent. 
D) 70 percent. 
A) 45 percent. 
B) 55 percent. 
C) 65 percent. 
D) 70 percent.

Exam 15: Income Inequality and Poverty

Figure 15-4 -Figure 15-4 shows the Lorenz Curve for three countries, I, II, and III. Of the three countries shown,

Why does the government provide benefits in-kind? Why don't we just give money to low-income people?

Figure 15-2 -According to the Lorenz curve shown in Figure 15-2, what percentage of total income is earned by the richest 20 percent of families?

Which of the following is true concerning the distribution of income?

In a market economy,

(I) In 2009, a family of four making $22,050 would be considered living in poverty. (II) The poverty threshold level of income is adjusted for family size and for inflation (price level changes) through time.

It would be more reasonable to use annual income data as an index of economic inequality if all of the households

If a family earned $10,000 and, as a consequence, sustained a reduction of $4,000 in government benefits, the family's implicit marginal tax rate would be

This year, Bob earned a total of $9,000. As a result, he received $9,000 less in government transfers. Therefore, his implicit marginal tax rate is

Which of the following is false about data on the inequality of annual family (or household) incomes?

Compared to those with lower incomes, families with higher incomes are more likely to be headed by a

The poverty threshold income level is

The sharp reduction in marginal tax rates during the 1980s

In a market economy, individuals have a strong incentive to develop their skills and provide others with resources, goods, and services that they value because these activities generally

The poverty threshold income level equals the

Economic analysis indicates that

When there is only a weak link between work effort and reward

The idea that transfer benefits to the poor encourage behavior that increases the risk of poverty is known as the

The poverty threshold income level is

The Economic Approach

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Consumer Choice and Elasticity

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

B: Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

Appendix: the Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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