Deck 19: Income Distribution,Poverty and Government Policy

Question 1

The table below shows the distribution of income in the U.S.in the year 1978. Table 19.1
According to Table 19.1,what percentage of income is received by the top 40% of the population?

A)41.6%
B)51.9%
C)60.8%
D)56.2%
E)68.6%

Answer 1

E

Question 2

Income inequality is indicated by a Lorenz curve that:

A)bows up,away from the line of income equality.
B)bows down,away from the line of income equality.
C)lies parallel to the line of income equality.
D)coincides with the line of income equality.
E)approaches the vertical axis.

Answer 2

B

Question 3

In Country X,the highest 10 percent of families account for 70 percent of income.In Country Y,the highest 10 percent of families account for 20 percent of income.In this example:

A)Country Y would be located on the line of perfect inequality.
B)income is more equally distributed in Country Y.
C)income is more equally distributed in Country X.
D)Country X would be located on the line of perfect equality.
E)the degree of income inequality is equal in both the countries.

Answer 3

B

Question 4

Empirical observations validate that the Gini co-efficient for the U.S.economy was between 0.35 and 0.37 until the 1990s,after which it has increased and reached 0.469.Which of the following can be inferred from this?

A)The distribution of national income in the U.S.has become slightly more equal since the 1990s.
B)The government spending on poverty alleviation has increased since 1990.
C)More jobs have been created in the U.S.since 1990.
D)The distribution of national income in the U.S.has become slightly more unequal since the 1990s.
E)The government has replaced the existing regressive tax structure with a progressive tax structure.

Question 5

The greater the value of the Gini co-efficient:

A)the greater will be the GDP of the economy.
B)the greater will be the income inequality.
C)the greater will be the revenue of the government from direct taxes.
D)the greater will be the equality in the distribution of income and wealth.
E)the lesser will be the expenditure on the part of the government.

Question 6

In a market system,incomes are distributed according to the:

A)principle of equality.
B)directions of a central authority.
C)needs of the people.
D)ownership of resources.
E)objectives of a planning commission.

Question 7

The table below shows the distribution of income in the U.S.in the year 1978. Table 19.1
Refer to Table 19.1.What percentage of income is received by the bottom 20% of the households?

A)10.3%
B)43.9%
C)24.7%
D)4.3%
E)16.9%

Question 8

Gini co-efficient is the:

A)area between the Lorenz curve and the vertical axis divided by the area under the Lorenz curve.
B)area between the Lorenz curve and the horizontal axis divided by the area above the Lorenz curve.
C)area between the Lorenz curve and the line of perfect equality divided by the area under the line of income equality.
D)area between the Lorenz curve and the line of perfect equality divided by the area above the line of perfect equality.
E)area between the line of perfect equality and the horizontal axis divided by the area between the Lorenz curve and the horizontal axis.

Question 9

The table below shows the distribution of income in the U.S.in the year 1978. Table 19.1
If a Lorenz curve is drawn using the data in Table 19.1,it will:

A)coincide with the line of perfect equality.
B)be a L-shaped curve.
C)bow above the line of perfect equality.
D)bow down below the line of perfect equality.
E)be a rectangular shaped curve.

Question 10

If 50 percent of the population receives 20 percent of the total income it can be represented by:

A)a point below the line of equality.
B)a line below the line of equality.
C)a point on the line of equality.
D)a line intersecting the line of equality from below.
E)a point above the line of equality.

Question 11

If the Gini coefficient for the United States is 0.47 and that for India is 0.36,which of the following statements is true?

A)The U.S.being an industrialized nation has a lower income inequality than India.
B)The Lorenz curve for the U.S.lies above the Lorenz curve for India.
C)India in spite of being a developing nation has a lesser income inequality than the U.S.
D)The Lorenz curve for India would coincide with the line of perfect equality.
E)The distribution of income in both the economies are equal.

Question 12

The table below shows the distribution of income in the U.S.in the year 1978. Table 19.1
Refer to Table 19.1.What percentage of households earn 31.5% of the income?

A)Bottom 20%
B)Top 20%
C)Bottom 60%
D)Top 40%
E)Top 10%

Question 13

If everyone had the same income,then the Lorenz curve would:

A)be the line of income equality.
B)bow down below the line of income equality.
C)be a parallel line lying below the line of income equality.
D)bow up above the line of income equality.
E)be a curve that intersects the line of income equality at its mid-point.

Question 14

The 45-degree line splitting the distance between the axes in a Lorenz Curve is the:

A)line of equal share of expenditure.
B)line of equivalent income.
C)line of income equality.
D)line of average income.
E)line of absolute inequality.

Question 15

A Gini of 0 implies:

A)every family has equal amount of income.
B)top 10% of the families appropriate almost 100% of the total income.
C)bottom 90% of the families have only 10% of the total income.
D)bottom 20% of the families have 80% of the total income.
E)only 1 family appropriates the entire national income.

Question 16

The diagram that represents how income is distributed among members of a population is known as a(n):

A)Indifference curve.
B)Laffer curve.
C)Edgeworth box.
D)Lorenz curve.
E)Phillips curve

Question 17

Which of the following results from the market system of resource allocation?

A)Equitable distribution of resources
B)High opportunity cost of production
C)Excess supply of goods and services resulting in decreased profits
D)Unequal distribution of income and wealth
E)Allocation of the goods and services to them who need them the most

Question 18

Assume that any given percentage of the population earns an equal percentage of real GDP.This percentage of population will be represented by:

A)a point below the line of income equality.
B)a line lying below the line of income equality.
C)a point on the line of income equality.
D)a line lying above the line of income equality.
E)a point above the line of income equality.

Question 19

The horizontal and vertical axes of the Lorenz curve respectively measure:

A)total income and total expenditure as cumulative percentages.
B)total income and total population as cumulative percentages.
C)total population and total expenditure as cumulative percentages.
D)total expenditure and total income as cumulative percentages.
E)total population and total income as cumulative percentages.

Question 20

If the Gini co-efficient for any economy is 0.85,which of the following statements is true?

A)The national income of this economy is more or less equally distributed.
B)The Lorenz curve for the economy will bow above the line of perfect equality.
C)The Lorenz curve for the economy will coincide with the line of perfect equality.
D)The Lorenz curve for the economy will bow down below the line of perfect equality.
E)The Lorenz curve for the economy will be a rectangle.

Question 21

Which of the following statements in the context of poverty in the U.S.is true?

A)Families headed by males are likely to be poor.
B)Caucasian Americans carry a much heavier burden of poverty compared to the native Americans.
C)Education and technical skills do not affect employment in the United States of America.
D)Females tend to have a greater literacy rate than males in the United States of America.
E)Minorities,young and disabled have a higher likelihood to fall into poverty

Question 22

If those who are poor at any one time are poor only temporarily,then their plight is only temporary.This statement is based on which of the following assumptions?

A)Many spells of poverty are relatively short-lived.
B)Government spending in the economy is inadequate.
C)All phases of the business cycle are temporary.
D)Education infrastructure in the economy is poor.
E)Once people fall below the poverty line,it is almost impossible for them to rise above it.

Question 23

The figure given below shows the Lorenz curves of two countries (Country A and Country B). Figure 19.2
Total income (cumulative percentage) Total population (cumuative percentage)
In Figure 19.2,the poorest 60 percent of the population in Country B receive:

A)30 percent of the national income.
B)40 percent of the national income.
C)60 percent of the national income.
D)20 percent of the national income.
E)10 percent of the national income.

Question 24

The measures of absolute poverty:

A)are inversely related to the degree of income equality in a country.
B)are directly related to the degree of income equality in a country.
C)depend on the prosperity of the poorest 50 percent of population.
D)determine the degree of income inequality.
E)are completely independent of the degree of income inequality.

Question 25

_____ are the primary population group with poverty-level incomes in the USA.

A)Single-income households
B)Households headed by males
C)College graduates
D)People who do not have high school education
E)Retired individuals

Question 26

Which of the following refers to per capita income?

A)National income divided by number of households
B)National income divided by number of people
C)Number of households divided by national income
D)Number of people divided by national income
E)Number of people divided by domestic income

Question 27

According to the Bureau of Labor Statistics,the distribution of consumption expenditures had a HiLo ratio of 3.8 in 2008 in contrast to the income ratio of 14.1.What can be inferred from the above statement?

A)The distribution of consumption expenditures across the households are unequal but the incomes are relatively equal.
B)Low income households have substantially less consumption expenditures.
C)The distribution of consumption expenditures is quite a bit more equal than is the distribution of income.
D)Poorest lot of the households consume much less than their before-tax incomes.
E)The rich people earn more and consequently consume much more than their poorer counterparts.

Question 28

The figure below shows two Lorenz curves,Y and Z. Figure 19.1 According to Figure 19.1,which of the following is true?

A)Line OXB is the line of perfect income inequality.
B)Curve OYB represents a less equal distribution of income than curve OZB.
C)Line AB represents a society in which wealth is shared equally among individuals.
D)Line OXB is the line of perfect income equality.
E)Line AB represents a society in which 50 percent of the population receives all the income.

Question 29

The extent to which people move from one income quintile to another over time is called _____.

A)migrancy
B)moveability
C)mobility
D)exchangeability
E)transferability

Question 30

The official poverty-line income is adjusted annually for _____.

A)income taxes
B)unemployment compensation benefits
C)house rents
D)inflation
E)increases in health-care costs

Question 31

The figure given below shows the Lorenz curves of two countries (Country A and Country B). Figure 19.2
Total income (cumulative percentage) Total population (cumuative percentage)
Refer to Figure 19.2.The richest 20 percent of the population in Country A receive:

A)10 percent of the national income.
B)20 percent of the national income.
C)30 percent of the national income.
D)40 percent of the national income.
E)50 percent of the national income.

Question 32

Why does the census data overstate inequality?

A)They overestimate the non cash transfers received by the people from the government.
B)They take into account the after-tax incomes.
C)They take into account the gifts and transfer receipts from friends and relatives staying abroad.
D)They do not consider the in-kind transfers received by the people from the government.
E)They overestimate the medical benefits received by the people from the government.

Question 33

Which of the following is a cash transfer received from the government?

A)Medicaid
B)Earned Income Tax Credit
C)Food stamps
D)Housing assistance
E)Free education

Question 34

Which of the following is an absolute measure of poverty?

A)Gini co-efficient
B)Per capita income
C)HiLo ratio
D)Hoover index
E)Theil index

Question 35

Which of the following is an example of in-kind transfer?

A)Social security benefits
B)Food stamps
C)Disability pensions
D)Unemployment compensations
E)Earned income tax credit

Question 36

A major problem with household data is that:

A)the income of the households vary greatly.
B)the households usually vary in their consumption patterns.
C)the households usually comprise of only one individual.
D)collecting data from the households is highly inconvenient.
E)the number of persons per household varies greatly.

Question 37

Following are the controversies over how poverty should be measured,except:

A)government transfers and other programs are not properly taken into account in the measures of poverty.
B)the poverty measures do not distinguish among the needs of different individuals.
C)the concept of poverty line does not draw any distinction between income and purchasing power.
D)the concept of poverty line does not take into account the expenditure on food by each family.
E)the income generated in the underground economy are not taken into account.

Question 38

The figure below shows two Lorenz curves,Y and Z. Figure 19.1 In Figure 19.1,which of the following could occur in the short run given the introduction of a regressive income tax?

A)The Lorenz curve OZB would shift to OYB.
B)The Lorenz curve OYB would coincide with the line OXB.
C)The Lorenz curve OZB would coincide with the line OXB.
D)The Lorenz curve OYB would coincide with the horizontal axis.
E)The Lorenz curve would shift from OYB to OZB.

Question 39

The figure given below shows the Lorenz curves of two countries (Country A and Country B). Figure 19.2
Total income (cumulative percentage) Total population (cumuative percentage)
In Figure 19.2,the richest 20 percent of the population in Country B receive:

A)20 percent of the national income.
B)60 percent of the national income.
C)50 percent of the national income.
D)40 percent of the national income.
E)80 percent of the national income.

Question 40

The allocations of goods and services from one group in a society to another are called:

A)mutually voluntary exchanges.
B)in-kind transfers.
C)grants.
D)economic rents.
E)transfer earnings.

Question 41

In a progressive tax structure:

A)both the tax rate and absolute tax amount increases with increase in income.
B)the tax rate remains constant,but the absolute tax amount increases with increase in income.
C)both the tax rate and absolute tax amount declines with increase in income.
D)the tax rate falls,but the absolute tax amount increases with increase in income.
E)the tax rate increases,but the absolute tax amount decreases with increase in income.

Question 42

Transfer programs are so named because they transfer:

A)the burden of poverty alleviation from the church to the state.
B)the poverty from the country side to the city.
C)the responsibility for maintaining minimum standards of living from the federal government to state governments.
D)income from the relatively high-income people to relatively low-income people.
E)the incidence of poverty from predominantly ethnic groups to the majority white population.

Question 43

The table given below shows the absolute tax amounts under five different tax policies for respective income levels. Table 19.2
Refer to Table 19.2.Which of the tax policies is an example of a proportional tax?

A)Alpha
B)Gamma
C)Eta
D)Beta
E)Delta

Question 44

If an individual who earns $20,000 pays $2,000 in taxes and another individual who earns $100,000 pays $10,000 in taxes,then these individuals are being taxed under a _______ tax system.

A)toll
B)regressive
C)progressive
D)proportional
E)negative income

Question 45

Taxes are one method of funding the poverty alleviation programs by the government.Which of the following is an important impact of taxes?

A)Taxes increase workers' incentives to work for longer hours.
B)Taxes raise the disposable income of the workers.
C)Imposition of taxes make the government popular among the people.
D)Taxes reduce the opportunity cost of leisure.
E)Taxes reduce the demand for labor.

Question 46

The table given below shows the absolute tax amounts under five different tax policies for respective income levels. Table 19.2
Refer to Table 19.2.The tax structure which leads to maximum income inequality is:

A)Beta.
B)Alpha.
C)Eta.
D)Gamma.
E)Delta.

Question 47

Supplementary Security Incomes are provided to those by the U.S.government who:

A)regularly pay a social security tax.
B)are below 65 years of age.
C)lack the required education to be absorbed in the job market.
D)earn less than $4,500 per year.
E)are temporarily unemployed.

Question 48

An imposition of tax by the government for funding welfare programs raises the cost of labor to firms as:

A)the demand for labor increases.
B)the demand for labor decreases.
C)the supply of labor decreases.
D)the supply of labor increases.
E)the opportunity cost of leisure increases.

Question 49

Which of the following tax structures helps in reducing income inequality?

A)Proportional tax structure
B)Regressive tax structure
C)Indirect tax structure
D)Progressive tax structure
E)A combination of proportional and regressive tax structure.

Question 50

The table given below shows the absolute tax amounts under five different tax policies for respective income levels. Table 19.2
Refer to Table 19.2.The example of a progressive tax is the:

A)tax policy Eta.
B)tax policy Delta.
C)tax policy Alpha.
D)tax policy Beta.
E)tax policy Gamma.

Question 51

Unemployment insurance provided by the U.S.government is usually funded by:

A)the excise duties imposed on the import of foreign goods.
B)the national tax on payrolls levied on firms.
C)external borrowing by the U.S.government.
D)printing new money.
E)selling off government bonds.

Question 52

A negative income tax implies that:

A)higher the income of an individual,higher will be the tax.
B)higher the income of an individual,lower will be the tax.
C)lower the income of an individual,lower will be the transfer income.
D)lower the income of an individual,higher will be the transfer income.
E)the transfer income received by all will be equal irrespective of the income level.

Question 53

A proportional tax tends to:

A)reduce income inequality.
B)increase overall income inequality.
C)leave the income distribution essentially unchanged.
D)increase income inequality among the rich.
E)generate additional tax revenues for the government.

Question 54

Which of the following transfer programs in the U.S.is funded by a national tax but administered by state governments?

A)Social security
B)Veterans' Administration Benefit program
C)Unemployment insurance
D)Food stamps
E)National Guard activities

Question 55

The main transfer programs of the U.S.government include each of the following,except:

A)social insurance.
B)cash welfare or public assistance.
C)in-kind transfers.
D)veterans' benefits.
E)employment programs.

Question 56

The table given below shows the absolute tax amounts under five different tax policies for respective income levels. Table 19.2
Refer to Table 19.2.Which of the following tax policies is regressive by nature?

A)Alpha
B)Beta
C)Gamma
D)Delta
E)Eta

Question 57

Those who argue that welfare programs are a drag on the economy are of the view that welfare programs funded by taxes:

A)reduce the opportunity cost of labor.
B)raise the incidence of poverty and income inequality.
C)raise the incentive to work.
D)reduce the tax-liability of the tax-payers.
E)reduce the demand for labor.

Question 58

The largest in-kind transfer received by the poor households in the U.S.is:

A)Old-Age,Survivors,and Disability Insurance.
B)the Head Start special education program for poor children.
C)Medicaid,which provides long-term medical care for the poor.
D)the food stamp program,which distributes food coupons to poor households.
E)Temporary Assistance for Needy Families

Question 59

At the break-even income level:

A)the tax levied on an individual is equal to zero.
B)the transfer income received by an individual is equal to zero.
C)the tax taken from an individual is greater than the transfer income received by him.
D)the tax taken from an individual is equal to the transfer income received by him.
E)the tax taken from an individual is less than the transfer income received by him.

Question 60

Which of the following tax structures creates a disincentive to earn more?

A)Proportional tax structure
B)Regressive tax structure
C)Digressive tax structure
D)Progressive tax structure
E)A combination of proportional and regressive tax structure

Question 61

If the income floor for a family of four is $25,000 and the negative income tax rate is 20 percent,the break-even income should be:

A)$125,000.
B)$250,000.
C)$100,000.
D)$200,000.
E)$225,000.

Question 62

For the negative income tax to eradicate poverty:

A)the guaranteed level of income has to be equal to the poverty line.
B)the break-even income has to be equal to the poverty line.
C)the negative income tax rate has to equal 50 percent.
D)the guaranteed level of income has to be equal to the break-even income.
E)the guaranteed level of income has to be equal to the tax paid.

Question 63

The rule which is used to compare economic growth among the nations is:

A)the per se rule.
B)the rule of 72.
C)the rule of thumb.
D)the rule of thirds.
E)the rule of 70.

Question 64

The programs which transfer income from the richer nations to the poorer nations are referred to as:

A)transfer payments.
B)foreign aid.
C)foreign portfolio investment.
D)outsourcing and offshoring.
E)external borrowing.

Question 65

The table given below shows the annual incomes of a family of four and the corresponding transfer incomes. Table 19.3
Refer to Table 19.3.Suppose the government changes the guaranteed income floor to $3,000.What is the new break-even level of income if the negative income tax rate is changed to 20 percent?

A)$3,000
B)$15,000
C)$6,000
D)$5,000
E)$30,000

Question 66

The table below shows the monthly income of a family and the fuel assistance received from the government. Table 19.4
Refer to Table 19.4.What is the marginal penalty on working (in terms of reduced fuel assistance) borne by the family when its income rises from $200 to $300?

A)$40
B)$50
C)$80
D)$60
E)$100

Question 67

Identify the correct statement.

A)The break-even income is directly related to the negative income tax.
B)The break-even income is inversely related to the income floor.
C)The break-even income is inversely related to the negative income tax.
D)The break-even income is less than the guaranteed income.
E)The break-even income is always equal to the guaranteed income.

Question 68

The "Robin Hood" tax policy,which taxes the rich to give to the poor,is best described by economists as:

A)a proportional tax policy.
B)a regressive tax policy.
C)a poll tax policy.
D)a progressive tax policy.
E)a capital tax policy.

Question 69

The table given below shows the annual incomes of a family of four and the corresponding transfer incomes. Table 19.3
Refer to Table 19.3.Suppose the family's annual earnings increases from $1,000 to $5,000.What is the resulting reduction in income transfer?

A)$5,000
B)$1,000
C)$4,750
D)$3,750
E)$2,000

Question 70

If the negative income tax rate is 25 percent and the break-even income of a family of four is $50,000,the guaranteed income floor is:

A)$10,000.
B)$15,000.
C)$10,500.
D)$12,500.
E)$15,500.

Question 71

The table given below shows the annual incomes of a family of four and the corresponding transfer incomes. Table 19.3
Refer to Table 19.3.What is the guaranteed income floor?

A)$20,000
B)$7,000
C)$1,000
D)$5,000
E)$8,750

Question 72

Suppose all families of four,who earn nothing,are guaranteed a transfer payment of $20,000 and the government levies a negative tax rate of 20 percent.Calculate the income level below which all such families will receive some income benefits.

A)$100,000
B)$50,000
C)$150,000
D)$40,000
E)$80,000

Question 73

The table below shows the monthly income of a family and the fuel assistance received from the government. Table 19.4
Refer to Table 19.4.If the family's monthly income rises from $300 to $400,the marginal penalty on working (in terms of reduced fuel assistance) is:

A)$80
B)$40
C)$50
D)$90
E)$100

Question 74

The guaranteed transfer income of Angela's family,which consists of her parents and her sister,is $15,000.This implies,if the family earns nothing it will receive a transfer of $15,000.If a negative tax rate of 50 percent is levied,the family's break-even income is:

A)$20,000.
B)$22,500.
C)$7,500.
D)$15,000.
E)$30,000.

Question 75

One of the major causes of economic backwardness in the poor countries is:

A)the absence of public goods.
B)the absence of private property rights.
C)a lack of government intervention in the market.
D)the absence of commonly owned resources.
E)a lack of foreign aid.

Question 76

Which of the following statements concerning income distribution among nations is true?

A)A country with unequal distribution of income has a high standard of living.
B)The richest countries have only 10 percent of the world's population but receive 80 percent of total world income.
C)The distribution of total world income among nations is equal.
D)One-quarter of the world's population lives in the developing countries.
E)Per capita income between countries is generally the same.

Question 77

If the income floor is set at $6,000 and the negative income tax rate is 20 percent,a family which earns nothing will have a total income (including the income tax transfer) of _____.

A)$1,500
B)$7,500
C)$4,500
D)$6,000
E)$1,200

Question 78

The negative income tax had not gained political acceptability because:

A)the politicians favor transfer of dollars rather than in-kind benefits.
B)it increases the opportunity cost of leisure.
C)the break-even income level is high.
D)it raises the labor cost borne by the producers.
E)it redistributes income from the poor to the rich.

Question 79

The table below shows the monthly income of a family and the fuel assistance received from the government. Table 19.4
Refer to Table 19.4.The greatest disincentive to work for this family occurs between the income levels of _____ and _____.

A)$0; $100
B)$100; $200
C)$400; $500
D)$200; $300
E)$300; $400

Question 80

The farther the Lorenz curve from the line of perfect equality the lower is the income inequality.