Deck 15: The Distribution of Income and Poverty

Question 1

In 2015, approximately 13.5 percent of the total population in the United States were living below the poverty line.

Answer 1

True

Question 2

When income distribution data for the United States is adjusted for taxes and in-kind transfer payments the distribution is more equal than before such an adjustment is made.

Answer 2

True

Question 3

The income level below which a family or person is considered poor and living in poverty is termed the income poverty threshold.

Answer 3

True

Question 4

In 2015, the top fifth of households in the U.S. received approximately 51 percent of the total money income.

Question 5

The poverty income threshold (or poverty line)is updated each year to reflect changes in the consumer price index.

Question 6

By itself, knowing a country's Gini coefficient does not tell one anything about the income distribution of a particular quintile within that country.

Question 7

Compared to those people who prefer to play it safe, individuals who are more comfortable taking risks are more likely to reach the top of the income distribution, or to hit the bottom, ceteris paribus .

Question 8

The Lorenz curve and the line of perfect income equality will be one and the same in an economy if 20% of all households receive 20% of all income.

Question 9

Luck is more likely to influence incomes in the short run than in the long run.

Question 10

A Gini coefficient is a number between 0 and 1.

Question 11

The Lorenz curve for a country with perfect income equality is a horizontal line.

Question 12

A computer is a good example of human capital .

Question 13

A disappearing middle class necessarily connotes a world of only the rich and the poor.

Question 14

It is not possible for everyone to be better off (in absolute terms)if the income distribution has become more unequal.

Question 15

There are more white persons in the United States living below the poverty line than African- American persons living below the poverty line.

Question 16

The practice of companies promoting from within is on the decline, possibly because of less regulated, increasingly competitive product markets.

Question 17

In the United States, the average household in the top quintile (of total money income)contains fewer persons than the average household in the bottom quintile.

Question 18

Based on the income data presented for the U.S. (in your text)the Gini coefficient was around 0.45 in 2007, which is higher than it was in 1947.

Question 19

If a country's Gini coefficient is zero, the income distribution in the country is completely unequal.

Question 20

Individual income is equal to labor income less income taxes.

Question 21

Which of the following is an example of human capital?

A)a computer
B)an electronic calculator
C)education
D)stocks and bonds

Question 22

One way to reduce the degree of income inequality is to

A)increase transfer payments going to people with low labor and asset incomes and increase taxes on people with high labor and asset incomes.
B)decrease transfer payments going to people with low labor and asset incomes and decrease taxes on people with high labor and asset incomes.
C)increase transfer payments going to people with low labor and asset incomes by less than taxes are increased on the same people.
D)increase transfer payments going to people with high labor and asset incomes by more than taxes are increased on the same people.

Question 23

The Gini coefficient is a number between

A)0 and 1.
B)1 and 10.
C)0 and 100.
D)-1 and 1.

Question 24

Which of the following is not an example of human capital?

A)leisure
B)a college education
C)training courses that enhance worker productivity
D)computer courses

Question 25

In 2019 a woman won a $600 million lottery. Her income is (most likely)largely due to her

A)hard work.
B)education.
C)highly marketable innate abilities.
D)good luck.

Question 26

Which of the following statements is true?

A)The people that make up the top 5 percent of all income earners are all millionaires.
B)In 2015, the lowest 20 percent of all income earners earned less than 5 percent of the total money income.
C)The income distribution in the United States is completely equal.
D)Between 1967 and 2015, the income distribution in the United States became more equal.

Question 27

The larger the Gini coefficient, the

A)greater the degree of income inequality.
B)greater the degree of income equality.
C)smaller the population.
D)larger the population.

Question 28

"In-kind" transfer payments are made

A)when the recipient performs some service in return for the payment.
B)in the form of goods and services.
C)in the form of lower taxes or tax breaks.
D)in the form of cash.

Question 29

Some economists contend that in-kind transfers should be included in the calculation of an individual's income because

A)in-kind items do not cost anything.
B)simple money income is a complete measure of one's command over goods and services.
C)in-kind items make a person "better off" than the person's actual money income would lead us to believe.
D)in-kind items make a person "worse off" than the person's actual money income would lead us to believe.

Question 30

To an economist, wage discrimination exists when

A)individuals of equal marginal revenue products are paid different wage rates.
B)people of different ethnic backgrounds are treated differently by employers.
C)women are paid different wage rates than men.
D)African-Americans are paid different wage rates than whites.

Question 31

Evidence seems to indicate that the distribution of income prior to adjusting for taxes and in-kind transfer payments is

A)less equal than after adjusting for taxes and in-kind transfer payments.
B)more equal than after adjusting for taxes and in-kind transfer payments.
C)the same as after adjusting for taxes and in-kind transfer payments.
D)impossible to determine.

Question 32

Which of the following statements is false ?

A)If people were more alike in terms of their marketable innate abilities and attributes, there would be less income inequality.
B)Some degree of income inequality can be attributed to the fact that some people consume less leisure than others.
C)Schooling is referred to as human capital.
D)Education differences are generally not reflected in income differences.

Question 33

As a determinant of a person's income, luck is more important in the __________ run, as continuous reoccurrences of one kind of luck are __________.

A)short; likely
B)short; unlikely
C)long; likely
D)long; unlikely

Question 34

An individual's income equals

A)labor income + wages + asset income.
B)labor income + asset income.
C)labor income + asset income - taxes.
D)labor income - taxes.
E)labor income + asset income + transfer payments - taxes.

Question 35

One measure of the severity of poverty is the ratio of income to poverty which is calculated by

A)dividing a family's poverty income threshold by that family's income.
B)dividing a family's transfer payments received by that family's income.
C)dividing a family's income by the family's poverty income threshold.
D)dividing a family's income by that family's transfer payments received.

Question 36

Which of the following statements is true?

A)If the Gini coefficient is large, then the space between the Lorenz curve and the line of perfect income equality will be small.
B)If the Gini coefficient is 1.00, then the Lorenz curve and the line of perfect income equality coincide.
C)If the government succeeds in decreasing income inequality, then the Gini coefficient will decrease.
D)If the Gini coefficient is 0.50, then one-half of the households earn one-half of the income, and the other half of the households earn the other half.

Question 37

Which of the following statements is false ?

A)The Lorenz curve expresses the relationship between cumulative percentage of households and cumulative percentage of income.
B)If there were perfect income equality, the Lorenz curve would be a 45-degree line.
C)The Gini coefficient is a measurement of the degree of inequality in the income distribution.
D)The Gini coefficient is a number between 0 and 100.

Question 38

If the Gini coefficient is zero, there is

A)relative income equality.
B)complete income inequality.
C)complete income equality.
D)relative income inequality.

Question 39

The Lorenz curve is a graphical representation of

A)the income to poverty ratio.
B)economic growth.
C)the percentage of total income left to spend after taxes.
D)the distribution of income.

Question 40

If the Gini coefficient is 1, there is

A)complete income inequality.
B)complete income equality.
C)relative income equality.
D)relative income inequality.

Question 41

The Gini coefficient is computed by dividing the area

A)between the line of perfect income equality and the actual Lorenz curve by the area below the Lorenz curve.
B)below the Lorenz curve by the total area below the line of perfect income equality.
C)between the line of perfect income equality and the actual Lorenz curve by the total triangular area below the line of perfect income equality.
D)above the line of perfect income equality by 5.

Question 42

The Gini coefficient would be

A)1 if there were perfect income equality.
B)zero if there were perfect income equality.
C)-l if there were complete income inequality.
D)zero if there were complete income inequality.

Question 43

In relative terms, poverty will always exist

A)regardless of how high the average absolute standard of living is.
B)given an unequal income distribution, unless there is absolute income equality.
C)regardless of how low the average absolute standard of living is.
D)in each and every economy.

Question 44

In 2015, the top 20 percent of households in the United States earned collectively approximately what percent of the total income of all households?

A)21 percent
B)31 percent
C)41 percent
D)51 percent
E)61 percent

Question 45

Exhibit 28-1 ​

Refer to Exhibit 28-1.  If the Gini coefficient is some number greater than 0, but less than 1, then the Lorenz curve could be

A)line AB.
B)line OB.
C)the curve connecting point O to point B.
D)the horizontal axis from 0 to A and the line AB.
E)point B.

Question 46

Which of the following is not an example of in-kind transfer payments?

A)food stamps
B)subsidized public housing
C)subsidized public education
D)Aid to Families with Dependent Children (AFDC)
E)Medicaid

Question 47

Exhibit 28-1 ​

Refer to Exhibit 28-1. If the Gini coefficient equals 0, then the Lorenz curve is

A)point A.
B)line OB.
C)the horizontal axis from 0 to A.
D)line AB.
E)the horizontal axis from 0 to A and the line AB.

Question 48

The existence of which of the following leads to an overestimate of the number of persons in poverty?

A)reported income
B)in-kind benefits received by the poor
C)uncounted homeless persons
D)taxes

Question 49

Which of the following is a definition of poverty in absolute terms?

A)A family is in poverty if it receives less than $10,000 a year in money income.
B)A family is in poverty if it receives an income that places it in the lowest 5 percent of family income recipients.
C)The Jones family is in poverty if the majority of families receive more income than the Jones family receives.
D)The Smith family is in poverty if the family earns 20 percent less than the average family.

Question 50

Which of the following statements is true?

A)Some degree of income inequality is due to the fact that individuals are innately different and make different choices.
B)No portion of income inequality is due to good or bad luck.
C)People who agree on the factors that cause income inequality also  are in agreement about the importance of the different factors.
D)No portion of income inequality is due to differences in innate abilities.

Question 51

In-kind transfer payments are transfer payments that are paid in

A)cash.
B)a specific good or service.
C)stocks and bonds.
D)gold coins.

Question 52

If we define poverty using absolute terms, it follows that

A)people are poor if they earn less than a specified income level.
B)there are no situations in which no one would be considered poor.
C)poverty exists if the Gini coefficient is small.
D)there are no situations in which no one would be considered rich.

Question 53

A person is more likely to be poor if he or she is

A)African-American or Hispanic rather than white.
B)a member of a male-headed family rather than a female-headed family.
C)old rather than young.
D)highly educated rather than uneducated.

Question 54

If we define poverty as income below $10,000 per year, we have set a(n)__________ definition of poverty.

A)relative
B)constrained
C)absolute
D)denominated

Question 55

The Lorenz curve of perfect income equality is a

A)vertical line.
B)horizontal line.
C)45-degree line.
D)downward-sloping line.
E)line with a slope of negative 1.

Question 56

Exhibit 28-1 ​

Refer to Exhibit 28-1. If the Gini coefficient equals 1, then the Lorenz curve is

A)point B.
B)line OB.
C)the horizontal axis from 0 to A.
D)line AB.
E)the horizontal axis from 0 to A and the line AB.

Question 57

Transfer payments are payments that are

A)made in return for goods and services currently supplied.
B)made in return for goods and services to be supplied in the future.
C)made in return for goods and services that were supplied in the past.
D)not made in return for goods and services currently supplied.

Question 58

Which of the following was not given as a reason for income differences in the textbook?

A)luck
B)low minimum wage
C)wage discrimination
D)risk taking

Question 59

Differences in income within an economy result from differences in all of the following except

A)innate abilities and attributes.
B)education and other training.
C)attitudes toward risk.
D)This is a trick question because all of these factors contribute to differences in income.

Question 60

Which of the following statements is false ?

A)There are more poor white persons than there are poor African-American persons.
B)People are more likely to be poor when they are young than at any other time.
C)Families headed by females are more likely to be poor than families headed by males.
D)The uneducated and poorly educated are less likely to be poor than the educated.

Question 61

The closer the Gini coefficient is to 1, the

A)greater the degree of income inequality.
B)less the degree of income inequality.
C)greater the degree of discrimination.
D)less the degree of discrimination.

Question 62

In 2015, the lowest 20 percent of households in the United States earned approximately what percent of the total income of all households?

A)1%
B)3%
C)8%
D)16%
E)20%

Question 63

The Gini coefficient measures the degree of

A)racial discrimination.
B)age discrimination.
C)income inequality.
D)sex discrimination.
E)wage discrimination.

Question 64

A person's labor income is equal to the __________ times __________. The return on savings that a person receives is referred to as __________.

A)wage rate a person earns; number of hours the person works; transfer income
B)wage rate a person earns; number of hours the person works; asset income
C)price divided by number of units sold; number of hours worked; liabilities income
D)wage rate a person earns; number of hours the person works; labor income
E)annual salary a person earns; number of days a year the person works; asset income

Question 65

The closer the Gini coefficient is to zero, the

A)greater the degree of income inequality.
B)less the degree of income inequality.
C)greater the degree of discrimination.
D)less the degree of discrimination.

Question 66

If the Gini coefficient is zero (0), this means that

A)there is complete income inequality.
B)there is some income inequality.
C)there is perfect income equality.
D)the area between the line of perfect income equality and the actual Lorenz curve is very large.

Question 67

A Gini coefficient of 2,

A)tells us that 2 percent of the households in the country receive 100 percent of total income.
B)tells us that 2 percent of the households in the country receive 50 percent of total income.
C)tells us that 50 percent of the households in the country receive only 2 percent of total income.
D)would be impossible because the Gini coefficient cannot be greater than 1.

Question 68

A Gini coefficient of 1 means there is

A)perfect income equality.
B)perfect income inequality.
C)a more equal distribution of income than before.
D)a less equal distribution of income than before.
E)the same distribution of income as before.

Question 69

When the actual Lorenz curve is a 45-degree line, there is

A)perfect income equality.
B)perfect income inequality.
C)a more equal distribution of income than before.
D)a less equal distribution of income than before.
E)the same distribution of income as before.

Question 70

A Gini coefficient of zero means there is

A)perfect income equality.
B)perfect income inequality.
C)a more equal distribution of income than before.
D)a less equal distribution of income than before.
E)the same distribution of income as before.

Question 71

If a person's asset income rises and his or her transfer payments (received)decline, it follows that that person's

A)overall income rises.
B)overall income falls.
C)overall income stays constant.
D)labor income will rise as his or her asset income rises.
E)overall income may rise, fall, or remain constant.

Question 72

The Lorenz curve is a graph of the __________ of the population.

A)age distribution
B)income distribution
C)wealth distribution
D)racial composition

Question 73

In order to make the income distribution more equal, the federal government could

A)increase taxes on the rich and increase transfer payments to the poor.
B)decrease taxes on the rich.
C)increase taxes on the poor.
D)increase taxes on the rich and decrease transfer payments to the middle class.

Question 74

When the actual Lorenz curve is as far away from the 45-degree line as possible, there is

A)perfect income equality.
B)perfect income inequality.
C)a more equal distribution of income than before.
D)a less equal distribution of income than before.

Question 75

A winner-take-all market

A)is one in which the top producer or performer in the market earns significantly more than others in the same market.
B)applies to the sports market and the entertainment market, exclusively.
C)the top producer earns all of the profits in that market.
D)earnings are distributed equally throughout the economy.

Question 76

If the Gini coefficient is one (1), this means that there is

A)perfect income equality.
B)some income inequality.
C)complete income inequality.
D)no area between the line of perfect income equality and the actual Lorenz curve.

Question 77

Economists often assert that a person who receives an in-kind transfer payment (from government)has a higher income as a result. But an in-kind transfer is not money income, so what are economists thinking?

A)They are thinking that an additional in-kind benefit, like more money income, makes a person better off and thus they are equating being better off (in the sense of having more goods and services)with a higher income.
B)They are thinking that persons who receive in-kind benefits end up selling them, receiving money in exchange.
C)They are thinking that the individuals who receive the in-kind benefits equate more in-kind benefits with more money income.
D)They are thinking that individuals who receive in-kind benefits would prefer to receive them over receiving additional money income, so that in-kind benefits are worth at least their monetary value.

Question 78

The Gini coefficients for countries A and B are 0.25 and 0.30, respectively. We can definitely conclude that

A)the lowest 20 percent family income groups in A and B receive 25 percent and 30 percent of total income, respectively.
B)the lowest 50 percent family income groups in A and B receive 25 percent and 30 percent of total income, respectively.
C)the lowest 20 percent family income group receives a greater share of total income in country A than in country B.
D)the lowest 20 percent family income group receives a greater share of total income in country B than in country A.
E)There is not enough information provided to determine the portion of income received by family income groups in these countries.

Question 79

Suppose the data show that each year between 1964 and 2019, 10 percent of all income earners (in the United States)earned a low enough income to be considered poor. It follows that

A)the person who was part of the 10 percent poor in 1964 was also part of the 10 percent poor in 2019.
B)the person who was part of the 10 percent poor in 1964 may or may not be part of the 10 percent poor in 2019.
C)there is no upward income mobility in the United States.
D)the income distribution in the United States (during this period of time)was equal.

Question 80

Suppose 60 percent of all households earn 60 percent of all income. Based on this information it follows that

A)20 percent of all households earn 20 percent of all income.
B)40 percent of all households earn 40 percent of all income.
C)the Lorenz curve and the line of perfect income equality are one and the same.
D)There is not enough information provided to answer this question.