Deck 20: Income Inequality and Poverty

Question 1

A government's policy of redistributing income makes the income distribution

A) more equal,distorts incentives,alters behavior,and makes the allocation of resources more efficient.
B) more equal,distorts incentives,alters behavior,and makes the allocation of resources less efficient.
C) less equal,distorts incentives,alters behavior,and makes the allocation of resources more efficient.
D) less equal,distorts incentives,alters behavior,and makes the allocation of resources less efficient.

Answer 1

B

Question 2

The marketplace allocates resources

A) fairly.
B) efficiently.
C) to those desiring them least.
D) both efficiently and equitably.

Answer 2

B

Question 3

Which of the following is not a question that economists try to answer when measuring the distribution of income?

A) How many people live in poverty?
B) How often do people receive a raise at work?
C) How often do people move among income classes?
D) What problems arise in measuring the amount of inequality?

Answer 3

B

Question 4

Governments enact policies to

A) make the distribution of income more efficient.
B) make the distribution of income more equal.
C) maximize the use of the welfare system.
D) minimize the use of in-kind transfers.

Question 5

Which of the Ten Principles of Economics do governments run into when they redistribute income to achieve greater equality?

A) Trade can make everyone better off.
B) The cost of something is what you give up to get it.
C) People face trade-offs.
D) Markets are usually a good way to organize economic activity.

Question 6

In the U.S.economy,labor earnings make up about

A) one-half of total income.
B) two-thirds of total income.
C) three-fourths of total income.
D) nine-tenths of total income.

Question 7

Which of the following is most likely to occur when the government enacts policies to make the distribution of income more equal?

A) a more efficient allocation of resources
B) a distortion of incentives
C) unchanged behavior
D) All of the above are correct.

Question 8

In the United States,labor earnings are what percent of total income?

A) 75 percent
B) 70 percent
C) 65 percent
D) 50 percent

Question 9

The invisible hand of the marketplace acts to allocate resources

A) efficiently but does not necessarily ensure that resources are allocated fairly.
B) both fairly and efficiently.
C) fairly but does not necessarily ensure that resources are allocated efficiently.
D) neither fairly nor efficiently.

Question 10

Based on data from 2008,the top fifth of all families received approximately what percent of all income in the United States?

A) 78 percent
B) 48 percent
C) 21 percent
D) 4 percent

Question 11

The income distribution in the United States shows that the income share of the top fifth of all families is

A) over 50 percent.
B) around 25 percent.
C) more than 10 times the income of the bottom fifth.
D) not much different from the income of the top 5 percent.

Question 12

Which two of the Ten Principles of Economics are illustrated in this chapter?

A) A country's standard of living depends on its ability to produce goods & People face tradeoffs.
B) Prices rise when the government prints too much money & Governments can sometimes improve market outcomes.
C) Governments can sometimes improve market outcomes & People face tradeoffs.
D) People face tradeoffs & Prices rise when the government prints too much money .

Question 13

When the government enacts policies to redistribute income,

A) the objective is to enhance efficiency and a side effect is that the allocation of resources becomes more equal.
B) the objective is to enhance efficiency and a side effect is that the allocation of resources becomes less equal.
C) the objective is to enhance equality and a side effect is that the allocation of resources becomes more efficient.
D) the objective is to enhance equality and a side effect is that the allocation of resources becomes less efficient.

Question 14

Government programs that take money from high-income people and give it to low-income people typically

A) improve economic efficiency by reducing poverty.
B) reduce economic efficiency because they distort incentives.
C) have no effect on economic efficiency because they both reduce poverty and distort incentives.
D) sometimes improve,sometimes reduce,and sometimes have no effect on economic efficiency.

Question 15

Comparing the United States household income distribution to other countries is

A) easy,because data is available for all countries in the world.
B) easy,because some countries collect data on expenditures instead of incomes.
C) problematic,because international agreements require countries to standardize their income accounting procedures.
D) problematic,because countries collect data in different ways.

Question 16

Economists study poverty and income inequality in order to answer which of the following questions?

A) What are people's wages?
B) How does labor-force experience affect wages?
C) How much inequality is there in society?
D) How do people adjust their behavior due to taxation?

Question 17

Based on U.S.income data from 2008,the bottom fifth of all families received approximately what percent of all income?

A) 48 percent
B) 21 percent
C) 10 percent
D) 4 percent

Question 18

When the government redistributes income to achieve greater equality,it

A) distorts incentives.
B) improves efficiency.
C) focuses on middle income brackets.
D) relies on foreign aid to help balance the budget.

Question 19

Which of the following is correct?

A) Governments can never improve market outcomes.
B) Governments can sometimes improve market outcomes.
C) Governments can always improve market outcomes.
D) Government can never make the income distribution more equal.

Question 20

Based on U.S.income data from 2008,the top fifth of all families received

A) the same share of income as the bottom fifth.
B) twice as much income as the bottom fifth.
C) approximately 5 times more income than the bottom fifth.
D) more than 10 times more income than the bottom fifth.

Question 21

In 2008,what percentage of U.S.families had income levels below $113,205?

A) 5 percent
B) 20 percent
C) 80 percent
D) 95 percent

Question 22

Table 20-3
The Distribution of Income in Hapland

Refer to Table 20-3.According to the table,what percent of families in Hapland have income levels above $60,000?

A) 80 percent
B) 60 percent
C) 50 percent
D) 40 percent

Question 23

Which of the following explains the rise in income inequality in the United States from 1970 to 2008?

A) An increase in minimum wages.
B) An increase in the demand for skilled labor.
C) An increase in the demand for unskilled labor.
D) Reduced international trade with low-wage countries.

Question 24

Which of the following does not explain the rise in income inequality in the United States from 1970 to 2008?

A) Changes in technology.
B) An increase in minimum wages.
C) A reduction in the demand for unskilled labor.
D) Increased international trade with low-wage countries.

Question 25

U.S.income data over the last 75 years suggests that the distribution of income

A) has gradually become more equal over the entire time period.
B) has gradually become less equal over the entire time period.
C) gradually became less equal until about 1970,then became more equal from 1970 to 2008.
D) gradually became more equal until about 1970,then became less equal from 1970 to 2008.

Question 26

If income were equally distributed among households,

A) each household's relative share of income would increase.
B) each household's relative share of income would decrease.
C) the top fifth of households would have 50 percent of the income.
D) 50 percent of the households would receive exactly 50 percent of the income.

Question 27

Table 20-1
The following table shows the distribution of income in Thomasville.

Refer to Table 20-1.Seventy-five percent of all families have incomes above what level?

A) $28,000
B) $50,000
C) $85,000
D) There is insufficient information to answer this question.

Question 28

Table 20-2
Percentage of Before-Tax Income Received by Families in Hapland

Refer to Table 20-2.According to the table,from 1950 to 2000,the Hapland income distribution became

A) less equal.
B) more equal.
C) more equal at the lowest level of income but less equal at highest level of income.
D) less equal at the lowest level of income but more equal at highest level of income.

Question 29

Table 20-1
The following table shows the distribution of income in Thomasville.

Refer to Table 20-1.If the poverty line was $22,063,what would be the poverty rate?

A) less than 25%
B) between 25% and 50%
C) between 50% and 75%
D) There is insufficient information to answer this question.

Question 30

When we compare the income distribution of the United States to those of other countries,we find that the U.S.

A) has one of the most unequal income distributions.
B) has one of the most equal income distributions.
C) ranks around the middle of the group.
D) is second to China as the most unequal distribution.

Question 31

Table 20-3
The Distribution of Income in Hapland

Refer to Table 20-3.According to the table,what percent of families in Hapland have income levels below $60,000?

A) 80 percent
B) 60 percent
C) 50 percent
D) 40 percent

Question 32

Table 20-3
The Distribution of Income in Hapland

Refer to Table 20-3.If the poverty rate is 23%,where is the poverty line in Hapland?

A) under $45,000
B) between $45,000 and $59,999
C) between $60,000 and $89,999
D) between $90,000 and $119,999

Question 33

Table 20-1
The following table shows the distribution of income in Thomasville.

Refer to Table 20-1.Seventy-five percent of all families have incomes below what level?

A) $28,000
B) $50,000
C) $85,000
D) There is insufficient information to answer this question.

Question 34

In 2008,what percentage of U.S.families had income levels above $113,205?

A) 5 percent
B) 20 percent
C) 80 percent
D) 95 percent

Question 35

Table 20-1
The following table shows the distribution of income in Thomasville.

Refer to Table 20-1.If the poverty line was $29,075,what would be the poverty rate?

A) less than 25%
B) between 25% and 50%
C) between 50% and 75%
D) There is insufficient information to answer this question.

Question 36

Table 20-1
The following table shows the distribution of income in Thomasville.

Refer to Table 20-1.Fifty percent of all families have incomes below what level?

A) $28,000
B) $50,000
C) $85,000
D) There is insufficient information to answer this question.

Question 37

Table 20-3
The Distribution of Income in Hapland

Refer to Table 20-3.Where would the government in Hapland set the poverty line to have a poverty rate of 40 percent?

A) $45,000
B) $60,000
C) $90,000
D) $120,000

Question 38

Which of the following is not correct?

A) Poverty is long-term problem for relatively few families.
B) Measurements of income inequality usually do not include in-kind transfers.
C) Measurements of income inequality use lifetime incomes rather than annual incomes.
D) Measurements of income inequality would be more meaningful if they reflected permanent rather than current income.

Question 39

Which of the following represents a problem in measuring inequality?

A) Measurements of income distributions typically include in-kind transfers,which distort the measure of inequality.
B) A normal life-cycle pattern causes inequality in the income distribution but may not reflect inequality in living standards.
C) Transitory income is a better measure of inequality than permanent income.
D) Both a and b are correct.

Question 40

Table 20-3
The Distribution of Income in Hapland

Refer to Table 20-3.According to the table,what percent of families in Hapland have income levels below $90,000?

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

Question 41

The 2008 U.S.distribution of income shows that the top 5 percent of families earn approximately how much income per year?

A) $175,000 and over
B) $200,000 and over
C) $225,000 and over
D) $250,000 and over

Question 42

Table 20-4
Source: U.S.Bureau of Census
Refer to Table 20-4.In 2007,the top fifth of families have

A) almost 15 times as much income as the bottom fifth of families.
B) 96.6% more income than the bottom fifth of families.
C) 50.3% more income than the bottom fifth of families.
D) 46.9% more income than the bottom fifth of families.

Question 43

The United States has more income inequality than

A) Brazil.
B) Mexico.
C) Canada.
D) South Africa.

Question 44

The 2008 U.S.distribution of income shows that the top fifth of all families have

A) more than ten times the income of the bottom 20 percent.
B) more than five times the income of the bottom 20 percent.
C) more than double the income of the bottom 20 percent.
D) the same share of income as the bottom 20 percent.

Question 45

When we examine historical data on income inequality in the U.S. ,we see that the distribution of income gradually became

A) more equal between 1935 and 2008.
B) more equal between 1935 and 1973,but that trend reversed itself between 1973 and 2008.
C) more unequal between 1935 and 1973,but that trend reversed itself between 1973 and 2008.
D) more unequal between 1935 and 2008.

Question 46

Which of the following statements is correct?

A) The United States has a more equal distribution of income than other developed countries such as Japan and Germany.
B) The statement "a rising tide lifts all boats" illustrates how economic growth reduces the number of people with income levels below the poverty line.
C) The economic life cycle explains why people base spending decisions on transitory income.
D) The United States has more income inequality than some developing countries,such as Mexico and Brazil.

Question 47

Of the four countries below,which has the highest degree of income inequality?

A) Japan
B) Brazil
C) South Africa
D) United States

Question 48

The United States has less income inequality than

A) Japan.
B) Canada.
C) Germany.
D) South Africa.

Question 49

The study by economists Cox and Alm found that the 2006 after-tax income of the richest fifth of U.S.households is

A) equal to the after-tax income of the poorest fifth.
B) 7 times the after-tax income of the poorest fifth.
C) 14 times the after-tax income of the poorest fifth.
D) 21 times the after-tax income of the poorest fifth.

Question 50

Of the four countries below,the country that has the most income equality is

A) Japan.
B) Brazil.
C) South Africa.
D) the United States.

Question 51

On average,the distribution of income tends to be

A) random across richer and poorer countries.
B) similar between richer and poorer countries.
C) less equal in richer countries than in poorer countries.
D) more equal in richer countries than in poorer countries.

Question 52

The study by economists Cox and Alm found

A) inequality in consumption is much smaller than inequality in annual income.
B) inequality in consumption is slightly smaller than inequality in annual income.
C) inequality in consumption is slightly larger than inequality in annual income.
D) inequality in consumption is much larger than inequality in annual income.

Question 53

The United States has relatively greater income

A) inequality than developing countries but greater equality than other developed countries.
B) inequality than both developing and other developed countries.
C) equality than developing countries but greater inequality than other developed countries.
D) equality than both developing and other developed countries.

Question 54

The 2008 U.S.distribution of income shows that the top 5 percent of families have approximately what share of income?

A) 1 percent
B) 5 percent
C) 10 percent
D) 20 percent

Question 55

Table 20-4
Source: U.S.Bureau of Census
Refer to Table 20-4.In 2007,the bottom 60% of families have

A) only 12% of total income in the U.S.
B) only 27% of total income in the U.S.
C) 50% of total income in the U.S.
D) 73% of total income in the U.S.

Question 56

Since about 1970 in the U.S. ,

A) decreases in the wages of unskilled workers,relative to skilled workers,have led to increased inequality in family incomes.
B) increases in the wages of unskilled workers,relative to skilled workers,have led to increased equality in family incomes.
C) inequality in family incomes has increased,despite increases in the wages of unskilled workers relative to skilled workers.
D) inequality in family incomes has decreased,despite increases in the wages of skilled workers relative to unskilled workers.

Question 57

When comparing the percentage of income (or expenditure)of the lowest and highest 10 percent of the population,

A) South Africa has a more equal income distribution than the United States.
B) South Africa has a more equal income distribution than Japan.
C) Japan has a more equal income distribution than the United States.
D) Mexico has a more equal income distribution than Canada.

Question 58

The 2008 U.S.distribution of income shows that the top 20 percent of families have approximately what share of income?

A) 20 percent
B) 35 percent
C) 50 percent
D) 80 percent

Question 59

The study by economists Cox and Alm found

A) the gap between rich and poor shrinks greatly if using after-tax income compared with pre-tax income.
B) the gap between rich and poor shrinks slightly if using after-tax income compared with pre-tax income.
C) the gap between rich and poor widens slightly if using after-tax income compared with pre-tax income.
D) the gap between rich and poor widens greatly if using after-tax income compared with pre-tax income.

Question 60

The study by economists Cox and Alm found that the 2006 pre-tax income of the richest fifth of U.S.households is

A) 5 times the pre-tax income of the poorest fifth.
B) 10 times the pre-tax income of the poorest fifth.
C) 15 times the pre-tax income of the poorest fifth.
D) 20 times the pre-tax income of the poorest fifth.

Question 61

The poverty rate is a measure of the percentage of people whose incomes fall below

A) a relative level of income.
B) an absolute level of income.
C) the median income for a family of three.
D) the bottom 20 percent of the income distribution.

Question 62

The poverty rate is based on a family's

A) income,in-kind transfers,and other government aid.
B) income and in-kind transfers.
C) in-kind transfers only.
D) income only.

Question 63

Table 20-8
Source: U.S.Bureau of Census
Refer to Table 20-8.In 2008,the bottom 60% of families has

A) about 14% of total income in the U.S.
B) about 29% of total income in the U.S.
C) about 50% of total income in the U.S.
D) about 73% of total income in the U.S.

Question 64

Which of the following is not correct?

A) Many measures of inequality are based on income,which may not reflect a person's standard of living.
B) Because many of the poorest families receive in-kind transfers,more families have lower standards of living when compared to poverty rates based on income.
C) Because people can borrow and save to smooth out life cycle changes in income,equality measures based only on income may not reflect a person's standard of living.
D) A person's standard of living depends more on her permanent income than her transitory income,so inequality measures based on current income may be misleading.

Question 65

In 2008,the poverty rate in the United States was 13.2 percent.This means that 13.2 percent

A) of the population had a total family income that fell below the poverty line.
B) of the population had a total family income that was above the poverty line.
C) of the population had a total family income below $10,000.
D) of the population had a total family income above $50,000.

Question 66

Table 20-5
*A Gini coefficient is a commonly used measure of income inequality,with values between 0 and 1 (0 corresponds to perfect equality whereby everyone has exactly the same income,and 1 corresponds to perfect inequality where one person has all the income,while everyone else has zero income).
Source: The World Bank
Refer to Table 20-5.Which of the following statements is correct?

A) Latvia has the most unequal distribution of income.
B) France has a more equal distribution of income than Italy.
C) Sweden has the most equal distribution of income.
D) All of the above are correct.

Question 67

Based on U.S.data for 2008,the poverty rate is the highest for which group of people?

A) children
B) married couples
C) female households,no spouse present
D) the elderly

Question 68

Table 20-6

Refer to Table 20-6.In both 2007 and 2008,approximately 25% of the population earned less than

A) $15,000.
B) $25,000.
C) $50,000.
D) $100,000.

Question 69

Table 20-8
Source: U.S.Bureau of Census
Refer to Table 20-8.In 2008,the top fifth of families has

A) about 12 times as much income as the bottom fifth of families.
B) 6.8% more income than the bottom fifth of families.
C) 47.8% more income than the bottom fifth of families.
D) 96.6% more income than the bottom fifth of families.

Question 70

Table 20-4
Source: U.S.Bureau of Census
Refer to Table 20-4.Comparing data from 2000 and 2007,which of the following statements is correct?

A) There has been no change in overall income inequality because the share of income held by the fourth fifth is identical.
B) Overall income inequality has worsened slightly,as shown by the simultaneous increase in the share of income held by the top fifth and the decrease in the share of income held by the bottom fifth.
C) Overall income inequality has improved because the share held by the middle fifth has declined by almost 1%.
D) None of the above is correct.

Question 71

The percentage of families with incomes below the poverty line

A) is defined as the 10 percent of U.S.households with the lowest incomes.
B) is known as the poverty rate.
C) is known as the unemployment rate.
D) rises as the general income level rises.

Question 72

Table 20-5
*A Gini coefficient is a commonly used measure of income inequality,with values between 0 and 1 (0 corresponds to perfect equality whereby everyone has exactly the same income,and 1 corresponds to perfect inequality where one person has all the income,while everyone else has zero income).
Source: The World Bank
Refer to Table 20-5.Which country has the most equal income distribution?

A) Latvia
B) Italy
C) France
D) Sweden

Question 73

Since the early 1970s,average incomes have

A) increased,which has reduced the poverty rate.
B) increased,while the poverty rate increased slightly.
C) decreased,while the poverty rate has remained unchanged.
D) remained unchanged,while the poverty rate has decreased.

Question 74

Table 20-6

Refer to Table 20-6.A person who is concerned that income inequality has worsened between 2007 and 2008 would cite which of the following statistics to support her position?

A) The percentage of people earning less than $25,000 decreased from 2007 to 2008.
B) The percentage of people earning more than $100,000 increased from 2007 to 2008.
C) The percentage of people earning between $50,000 and $100,000 stayed virtually constant from 2007 to 2008.
D) Both a)and b)are correct.

Question 75

A commonly-used gauge of poverty is the

A) income inequality rate.
B) average income rate.
C) poverty rate.
D) social inequality rate.

Question 76

Table 20-8
Source: U.S.Bureau of Census
Refer to Table 20-8.Comparing data from 2000 and 2008,which of the following statements is correct?

A) There has been no change in overall income inequality because the share of income held by the middle fifth is identical.
B) Overall income inequality has worsened slightly,as shown by the simultaneous increase the share of income held by the top fifth and the decrease in the share of income held by the bottom fifth.
C) Overall income inequality has improved because the share held by the middle fifth has declined by almost 1%.
D) None of the above is correct.

Question 77

Table 20-5
*A Gini coefficient is a commonly used measure of income inequality,with values between 0 and 1 (0 corresponds to perfect equality whereby everyone has exactly the same income,and 1 corresponds to perfect inequality where one person has all the income,while everyone else has zero income).
Source: The World Bank
Refer to Table 20-5.Which country has the most unequal income distribution?

A) Latvia
B) Italy
C) France
D) Sweden

Question 78

Table 20-7

Refer to Table 20-7.Which of the following is the best overall conclusion to draw from the data?

A) The most alarming statistic is the lowering of the top income level that defines the bottom fifth of the income distribution because this indicates that the income distribution is becoming more unequal.
B) The greatest cause for concern is the increase in the minimum income level that defines the top fifth of the income distribution because this indicates that the rich have become richer.
C) The income distribution is has been relatively unchanged from 1998 to 2008.
D) Both a)and b)are correct.

Question 79

Measures of poverty that fail to account for the value of in-kind transfers

A) understate the actual poverty rate.
B) have little effect on the validity of reported poverty rates.
C) are generally more reliable measures of actual poverty rates.
D) overstate the actual poverty rate.

Question 80

Figure 20-1
Refer to Figure 20-1.The ratio of female-to-male earnings has increased steadily from about 1980 to 2008 because the earnings of men

A) increased steadily but by approximately half of the increase in the earnings of women.
B) decreased while the earnings of women increased.
C) stayed relatively constant while the earnings of women increased.
D) decreased by substantially more than the decrease in the earnings of women.