Deck 7: Government Subsidies and Income Support for the Poor

Question 1

The rate of poverty has increased in the United States since 1959.

Answer 1

False

Question 2

The poverty threshold is independent of the size of a family and the age of a household head.

Answer 2

False

Question 3

Since TANF has been introduced in the United States, welfare caseloads have declined and labor force participation of less-skilled single mothers has increased.

Answer 3

True

Question 4

Medicaid is jointly financed by the federal government and the state governments in the United States and now absorbs more than 20 percent of state government budgets.

Question 5

A two-person household headed by a person over 65 is classified as poor at the same level as a two-person household not headed by an elderly person.

Question 6

Supplemental Nutrition Assistance formerly called food stamps) lower the price of food to recipients.

Question 7

The Earned Income Tax Credit EITC) is a form of wage-rate subsidy that increases the incomes of low-income people with earnings.

Question 8

Cash transfers currently account for much less of the total transfers to the poor than in-kind transfers do.

Question 9

The cash benefit and eligibility for payments under TANF varies considerably from state to state.

Question 10

The Earned Income Tax Credit EITC) is a form of negative tax that increases the incomes of workers with earnings but is eventually phased out to zero as earnings rise above a certain level.

Question 11

Medicaid is likely to result in incentives for recipients to consume medical services up to a point at which the marginal social cost of such services exceeds their marginal benefit.

Question 12

All persons in the United States with income below the poverty level are eligible for TANF or for SSI transfers designed to assist the poor.

Question 13

In calculating the official poverty rate, cash transfers to the poor are included in their income, but in-kind transfers are not.

Question 14

Less than one-third of the people classified as poor in the United States are children.

Question 15

A person receiving a lump-sum annual transfer is likely to work less than would otherwise be the case.

Question 16

Government transfers to the poor in the United States:

A) are always in the form of cash.
B) are available to all persons whose income is below the poverty threshold.
C) succeed in eliminating poverty in the United States.
D) are available only to poor persons who fall into certain demographic categories.

Question 17

The Earned Income Tax Credit EITC) is a way of subsidizing those who are unable to work and have no earnings.

Question 18

In the United States, the poverty threshold is:

A) the same for all households of a given size independent of the age of the household head.
B) the cost of a minimally accepted diet for persons in the family.
C) three times the cost of a minimally accepted diet for persons in the family, for families with household heads under the age of 65.
D) five times the cost of a minimally accepted diet for persons in the family, for families with household heads under the age of 65.

Question 19

The annual income guarantee under a negative income tax is $10,000 per family of four. This transfer declines by 50 cents for each dollar of annual earnings. The transfer received by a family of four will decline to zero when its annual earnings is $20,000.

Question 20

The poverty threshold stays constant from year to year.

Question 21

In the United Stated, which of the following years had the highest poverty rate?

A) 2000
B) 1993
C) 1980
D) 1873

Question 22

A welfare recipient receives a cash transfer of $100 per week. This grant is not reduced if the recipient earns less than $20 per week. However, after the recipient earns more than $20 per week, the grant is reduced by 66 cents for each dollar of earnings. The cash transfer will be reduced to zero if the recipient earns:

A) $151.52 per week.
B) $171.52 per week.
C) $131.52 per week.
D) $100.00 per week.

Question 23

If the supply of medical services is perfectly elastic, then the effect of Medicaid is to:

A) increase the market price of medical services.
B) result in the efficient amount of medical services.
C) cause recipients to consume medical services beyond the point at which their marginal benefits per year equal the marginal social costs of medical services.
D) both a and c

Question 24

The most expensive program of assistance to the poor in the United States in recent years has been:

A) TANF.
B) Supplemental Nutrition Assistance formerly called food stamps).
C) Medicaid.
D) public housing.

Question 25

The Earned Income Tax Credit EITC):

A) is a negative tax that transfers income to the poor who have earnings.
B) can increase the incomes of those eligible by as much as 40 percent.
C) is never phased out as the earnings of the recipients increase.
D) both a and b

Question 26

Why rely on the government to aid the poor rather than private charities?

A) The government can establish uniform standards for eligibility.
B) Voluntary donations will most likely be inadequate.
C) The government will most likely be able to meet all needs to the satisfaction of all citizens.
D) both a and b

Question 27

The value of a price-distorting subsidy for a three-bedroom apartment is $100 per month. This means that the person choosing to live in an apartment of that size would have to pay an extra $100 per month at the market rent. Then it follows that:

A) that person would be worse off if she received a cash subsidy of $100 per month.
B) that person would be better off if she received a cash subsidy of $100 per month.
C) that person would be just as well off if she received a cash subsidy of less than $100 per month.
D) both b and c

Question 28

Medicaid was enacted by Congress in:

A) 1965.
B) 1972.
C) 1977.
D) 1980.

Question 29

Cash transfers are:

A) the dominant method of providing assistance to the poor in the United States.
B) included in the income of recipients when calculating the official poverty rate.
C) available only to the elderly in the United States.
D) both a and b

Question 30

The Supplemental Nutrition Assistance formerly called food stamps):

A) reduces the market price of food to those eligible for Supplemental Nutrition Assistance.
B) is likely to increase the market price of food to all consumers.
C) is likely to increase food purchases by recipients but not other purchases.
D) is likely to increase both food and nonfood purchases by recipients.

Question 31

Which of the following is true about the Medicaid program in the United States?

A) It is entirely financed by the federal government.
B) It is a means-tested entitlement program that mandates payment for medical services, mainly to those with low incomes.
C) It is jointly financed by the federal and state governments and is absorbing a significant share of the state government budgets.
D) both b and c

Question 32

An income guarantee of $10,000 per year for all families is established with a phase-out rate of benefits of 50 cents per dollar of earnings. Then it follows that:

A) only families with earnings of less than $10,000 per year will receive transfers.
B) all families with earnings of less than $20,000 per year will receive transfers.
C) all families with income of less than $30,000 per year will receive transfers.
D) all families will receive transfers.

Question 33

Suppose a welfare recipient is given a cash grant that increases his monthly income. That grant will never be taken away no matter how much the recipient earns. The grant will result in an):

A) substitution effect favorable to work.
B) substitution effect unfavorable to work.
C) income effect favorable to work.
D) income effect unfavorable to work.

Question 34

An EITC program is more likely to encourage working when compared to NIT program because:

A) participants are guaranteed income even if they are not working.
B) participants must work to receive benefits.
C) participants are eligible for work training.
D) participants receive a wage rate subsidy.

Question 35

What criteria are used in the United States to determine eligibility for transfers to alleviate poverty? Explain why some people who are poor according to official statistics will be ineligible for aid. Explain why taxpayers can have their tax bills reduced, while most poor persons will be made no worse off if in-kind transfers were eliminated and replaced with their cash value to recipients.

Question 36

The Earned Income Tax Credit EITC) is:

A) a transfer to low-income people who are unable to work.
B) a flat grant that increases by $4,000 the income of all workers below the poverty level.
C) a subsidy to the poor who have low earnings that increases as they earn more, reaches a maxi?mum, and then is phased out to zero as earnings increase above a certain maximum.
D) available to all persons whose incomes are below the poverty level, whether they work or not.