Deck 20: Transfer Payments: Welfare and Social Security

Question 1

In-kind transfers are

A) The transfer of goods and services, instead of income, to those in need.
B) Paid to individuals in a form that gives them the maximum flexibility to buy what they need.
C) A means to allow the poor to make financial transactions between private providers of their own choosing.
D) Programs for job relocation and training of poor people who wish to work in other geographic areas.

Answer 1

The transfer of goods and services, instead of income, to those in need.

Question 2

In-kind transfers

A) Are received as cash.
B) Are more target-efficient than cash.
C) Encourage the poor to earn more income.
D) Decrease the real income of poor families.

Answer 2

Are more target-efficient than cash.

Question 3

To be eligible for a welfare program, the recipient must

A) Be elderly.
B) Be poor.
C) Be in need of medical care.
D) Have contributed to the fund.

Answer 3

Be poor.

Question 4

Income transfers that entail direct payments to recipients, such as unemployment benefits, are known as

A) In-kind transfers.
B) Money transfers.
C) Cash transfers.
D) Dollar transfers.

Question 5

Transfer payments are

A) Payments to individuals for which no current goods or services are exchanged.
B) Government tax receipts.
C) Government expenditures on goods and services.
D) Social Security taxes paid by employers.

Question 6

Social Security benefits paid by the federal government

A) Are income transfers financed by taxes on workers and employers.
B) Are classified as in-kind benefits.
C) Have no effect on the decision of for whom output is to be produced.
D) Are not a transfer program because people must contribute to the fund in order to receive benefits.

Question 7

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

A) Income transfers.
B) TANF.
C) Medicaid.
D) Social Security.

Question 8

Transfer payments include all of the following except

A) Government-subsidized loans for students.
B) Federal crop assistance for farmers.
C) A church-run thrift store for the poor.
D) Social Security benefits for retirees.

Question 9

Social Security is an example of

A) An in-kind transfer program.
B) A cash transfer program.
C) A welfare program.
D) Neither a transfer nor welfare program since individuals must contribute to the fund.

Question 10

Which of the following programs is likely to have low target efficiency?

A) An insurance card that allows the elderly to obtain health care.
B) A cash payment directly to the landlord to offset the cost of housing for certain individuals.
C) Food stamps that can only be used for food.
D) A cash payment that the recipient is encouraged to use for housing.

Question 11

Which of the following programs is the second-largest federal income transfer program?

A) Medicare.
B) Social Security.
C) Unemployment compensation.
D) Medicaid.

Question 12

Which of the following student aid programs is likely to have the highest target efficiency?

A) Direct payment of tuition to the university.
B) Direct cash payments to the student.
C) Low-interest loans.
D) Job opportunities for students.

Question 13

Means-tested income transfer programs are referred to as

A) In-kind transfer programs.
B) Welfare programs.
C) Cash transfer programs.
D) Social insurance programs.

Question 14

Which of the following is a goal of an in-kind transfer program but not a cash transfer program?

A) To change the market's answer to the FOR WHOM question.
B) To address the issue of inequity.
C) To ensure that recipients get the type of aid intended.
D) To change the market's answer to the HOW question.

Question 15

In-kind transfers

A) Are a payment for work.
B) Increase the poverty index.
C) Are one way to reduce the moral hazards of the welfare system.
D) Provide the direct transfer of goods and services.

Question 16

When a program is means-tested, it means that

A) To be eligible, the recipient must be poor.
B) It is a social insurance program.
C) It is an in-kind program.
D) The target efficiency is high.

Question 17

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

A) Food stamps.
B) Unemployment benefits.
C) Housing assistance.
D) Subsidized school lunches.

Question 18

Which of the following is most likely to occur if Medicare is converted from an in-kind transfer program to a cash transfer program?

A) A more equitable distribution of health care.
B) Increased target efficiency.
C) Increased poverty.
D) A reduction in health care for the elderly.

Question 19

Which of the following programs is the largest federal income transfer program?

A) Welfare.
B) Social Security.
C) Unemployment compensation.
D) Food stamps.

Question 20

The percentage of income transfers that go to the intended recipients and purposes refers to the

A) Target welfare population.
B) Target efficiency.
C) Efficiency coefficient.
D) Market efficiency.

Question 21

Figure 34.2 illustrates two labor supply curves.If in-kind payments become readily available in this economy and marginal tax rates increase significantly, we would expect a shift from

A)S₁ to S₂ only.
B) S₂ to S₁ and a movement up S_1.
C)S₂ to S₁ only.
D) S2 to S1 and a movement down S1.

Question 22

In 2015, the largest U.S.in-kind transfer program was

A) Medicare.
B) Food stamps.
C) Unemployment insurance.
D) Housing aid.

Question 23

Refer to Figure 34.1.Suppose the production possibilities curve PP₂ represents the U.S.economy and point C represents the combination of goods and services currently being produced.If welfare discourages people from seeking work, the most likely result of eliminating welfare in the United States would be

A) A movement from point C to a point on PP₂.
B) A shift from PP₂ to PP₁.
C) A shift from PP2 to PP3.
D) No change from PP₂ or pointC.

Question 24

Social insurance programs

A) Are event-conditional.
B) Involve an income eligibility test.
C) Are a type of welfare program.
D) Are means-tested.

Question 25

Welfare programs differ from social insurance programs in that welfare programs

A) Are event-based.
B) Are available only to people who do not work.
C) Offer benefits only to the needy.
D) Have low target efficiency.

Question 26

Which of the following is least likely to be the case?

A) Food stamps encourage the production of more food.
B) Housing subsidies encourage the production of additional housing.
C) Medicare changes the mix of output away from medical services.
D) Student loans change the mix of output in favor of educational services.

Question 27

The existence of income transfer programs can

A) Decrease the birth rate.
B) Increase the wage rate as the labor supply decreases.
C) Decrease the wage rate as labor supply increases.
D) Encourage workers to enter the labor force more quickly.

Question 28

Figure 34.2 illustrates two labor supply curves.If in-kind payments become less available in this economy and marginal tax rates decrease significantly, we would expect a shift from

A)S₁ to S₂ only.
B) S₁ to S₂ and a movement up S_2.
C) S₂ to S₁ only.
D) S2 to S1 and a movement down S1.

Question 29

The existence of income transfer programs can

A) Increase the work incentive and increase GDP.
B) Increase the work incentive and increase total income.
C) Decrease the incentive to work, but still increase GDP.
D) Decrease the incentive to work and reduce income and output.

Question 30

The shortfall between actual income and the poverty threshold is the

A) Welfare gap.
B) Poverty gap.
C) Target efficiency.
D) Moral hazard.

Question 31

The existence of transfer programs implies that

A) Government failure has occurred.
B) Market failure has occurred.
C) Technical efficiency exists.
D) Allocative efficiency exists.

Question 32

The existence of income transfer programs is likely to

A) Result in recipients having fewer children.
B) Change the distribution of income but not the mix of output.
C) Decrease the supply of labor.
D) Discourage people from overusing health care services.

Question 33

Refer to Figure 34.1.Suppose the production possibilities curve PP₂ represents the goods and services produced in the U.S.economy.If welfare discourages people from seeking work, and laws change so that more people receive welfare benefits, the most likely result would be

A) A movement from point C to point PP₂.
B) A shift from PP₂ to PP₁.
C) A shift from PP₂ to PP₃.
D) No change from PP2 or point C.

Question 34

Welfare benefits reduce the need to work and result in a shift in the

A) Labor supply curve to the left.
B) Labor supply curve to the right.
C) Labor demand curve to the left.
D) Labor demand curve to the right.

Question 35

Social insurance programs are

A) Event-conditional.
B) Means-tested.
C) Available only to those at least 65 years old.
D) Considered a welfare program.

Question 36

The poverty gap is the

A) Shortfall between a household's actual income and the poverty threshold.
B) Percentage of families under the poverty level.
C) Difference between the income of a household in poverty and the average income.
D) Difference between the incomes of the richest and poorest households.

Question 37

A market failure exists when an imperfection in

A) Federal government policies prevents an optimal outcome.
B) Welfare programs prevents an optimal outcome.
C) The market mechanism prevents an optimal outcome.
D) State government policies prevents an optimal outcome.

Question 38

A goal of income transfer programs is to do all of the following except

A) Alter the distribution of income.
B) Reduce income inequalities.
C) Change the mix of output.
D) Change how output is produced.

Question 39

Medicaid and food stamps are received by

A) Anyone that applies.
B) Only the elderly.
C) Only the poor.
D) Mostly upper-income households in the United States due to inequities in the system.

Question 40

Which of the following is a welfare program?

A) Food stamps.
B) Social Security.
C) Medicare.
D) Disaster relief.

Question 41

Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - 0.7 [Wages - (Work expenses + Child care costs)] Suppose Carter works 1,200 hours per year at a wage of $6 per hour, has child care expenses of $2,200 per year, and has work expenses of $800.If the state maximum welfare benefit is $12,000 per year, based on the welfare formula given, Carter's welfare benefit will be

A) $3,000.
B) $10,200.
C) $9,060.
D) $12,000.

Question 42

Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - 0.7 [Wages - (Work expenses + Child care costs)] Based on the information given, the marginal tax rate is

A) Zero percent.
B) 30 percent.
C) 70 percent.
D) 100 percent.

Question 43

Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - Wages A welfare system based on the welfare formula given

A) Will increase the risk of moral hazard.
B) Will increase work incentives.
C) Will increase the number of people eligible for welfare.
D) Has an effective marginal tax rate of 50 percent for welfare recipients.

Question 44

Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - 0.4 [Wages - (Work expenses + Child care costs)] Suppose Shanika works 2,000 hours per year at a wage of $6 per hour, has child care expenses of $3,000 per year, and has work expenses of $900.If the state maximum welfare benefit is $11,000 per year, based on the welfare formula given, Shanika's welfare benefit will be

A) $2,900.
B) $8,100.
C) $7,760.
D) Zero because her income exceeds the limit.

Question 45

Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - Wages Based on the information given, the marginal tax rate is

A) Zero percent.
B) 33 percent.
C) 67 percent.
D) 100 percent.

Question 46

A lower marginal tax rate for welfare recipients will

A) Decrease work incentives.
B) Reduce the possibility of moral hazard.
C) Increase the poverty gap.
D) Reduce total welfare expenditures.

Question 47

If welfare benefits equal the poverty gap for each household in poverty, then the

A) Effective marginal tax rate for welfare recipients is 100 percent.
B) Poor have a strong incentive to begin working.
C) The poverty gap will become greater.
D) Production possibilities curve will shift to the right.

Question 48

The official poverty index is based on

A) Family size and income.
B) In-kind income.
C) An event condition.
D) The number in the family who are employed.

Question 49

Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - 0.4 [Wages - (Work expenses + Child care costs)] Based on the information given, the marginal tax rate is

A) Zero percent.
B) 40 percent.
C) 60 percent.
D) 100 percent.

Question 50

Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - Wages Suppose Parker works 2,000 hours per year at a wage of $12 per hour.If the state maximum welfare benefit is $14,000 per year, based on the welfare formula given, Parker's welfare benefit will be

A) Zero.
B) $7,000.
C) $14,000.
D) $28,000.

Question 51

Moral hazard is

A) The risk involved in accepting welfare.
B) An incentive to engage in undesirable behavior.
C) The involvement in illegal activity.
D) The abuse of the welfare system by some nonneedy recipients.

Question 52

Lower marginal tax rates for welfare programs will

A) Decrease the incentive to work.
B) Decrease total welfare costs.
C) Make more people eligible for welfare.
D) Increase the moral hazard associated with welfare.

Question 53

Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - 0.7 [Wages - (Work expenses + Child care costs)] Suppose Ramirez works 1,800 hours per year at a wage of $7 per hour, has no child care expenses, and has work expenses of $600.If the state maximum welfare benefit is $13,000 per year, based on the welfare formula given, Ramirez's welfare benefit will be

A) Zero because his income has exceeded the limit.
B) $400.
C) $1,000.
D) $4,600.

Question 54

Higher marginal tax rates for welfare programs will

A) Increase total welfare costs.
B) Decrease the incentive to work.
C) Increase the number of people eligible for welfare.
D) Decrease the moral hazard associated with welfare.

Question 55

If welfare benefits equal the poverty gap for each household in poverty, then

A) The effective marginal tax rate for welfare recipients is 50 percent.
B) Every dollar of wages results in a lost dollar of welfare benefits.
C) Total output for the economy will increase.
D) People who are classified as poor will have a strong incentive to work.

Question 56

Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - 0.4 [Wages - (Work expenses + Child care costs)] Suppose Emily works 1,800 hours per year at a wage of $8 per hour, has child care expenses of $4,000 per year, and has work expenses of $1,000.If the state maximum welfare benefit is $12,000 per year, based on the welfare formula given, Emily's welfare benefit will be

A) $8,240.
B) $2,600.
C) $3,760.
D) Zero because her income exceeds the limit.

Question 57

Which of the following is used to determine if a family is in poverty?

A) The level of education attained.
B) The level of current income.

Question 58

Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - 0.7 [Wages - (Work expenses + Child care costs)] Suppose Miller works 2,000 hours per year at a wage of $8 per hour, has child care expenses of $3,000 per year, and has work expenses of $2,000.If the state maximum welfare benefit is $10,000 per year, based on the welfare formula given, Miller's welfare benefit will be

A) Zero because his income has exceeded the limit.
B) $2,300.
C) $10,000.
D) $14,400.

Question 59

Welfare support creates a moral hazard by

A) Reducing the need to work.
B) Encouraging workfare.
C) Encouraging individuals to help themselves.
D) Solving the equity and efficiency conflict.

Question 60

If welfare benefits equaled the poverty gap for each household in poverty, then

A) Work effort would increase.
B) Production possibilities would expand.
C) Poverty would be eliminated.
D) The mix of output would not change.

Question 61

Suppose a poverty program has a basic benefit of $14,000, zero deductions, and a marginal tax rate of 0.70.The breakeven level of income is

A) $14,000.
B) $9,800.
C) $4,200.
D) $20,000.

Question 62

Refer to Figure 34.3.The implied marginal tax rate is

A) 0 percent.
B) 50 percent.
C) 100 percent.
D) Greater than 100 percent.

Question 63

The breakeven level of income is the

A) Lowest level of income at which in-kind benefits are no longer necessary.
B) Level of income at which an individual household begins to have some discretionary income.
C) Level of income above which a person loses all welfare benefits.
D) Amount of income a person must have to reach the poverty line.

Question 64

Higher breakeven levels of income can be achieved by decreasing

A) In-kind benefits.
B) Earnings disregards.
C) Basic benefits.
D) The marginal tax rate.

Question 65

The breakeven level of income equals the

A) Minimum amount of income society considers desirable for households to have.
B) Amount of income a family may earn without losing any welfare benefits.
C) Need standard with a marginal tax rate of zero percent.
D) The highest level of income at which a household ceases to receive welfare benefits.

Question 66

Suppose a poverty program has a basic benefit of $10,000, zero deductions, and a breakeven level of income of $25,000.The marginal tax rate is ____ percent.

A) 2.50
B) 0.40
C) 0.20
D) 0.08

Question 67

Refer to Figure 34.3.If a welfare recipient did not work, he or she would receive welfare benefits of

A) $0.
B) $1,000.
C) $5,000.
D) $10,000.

Question 68

A marginal tax rate of zero for welfare programs will

A) Increase work effort.
B) Reduce welfare costs.
C) Increase the number of people eligible for welfare.
D) Increase the risk of moral hazard.

Question 69

Suppose a poverty program has a basic benefit of $8,000, and a family can earn up to $16,000 before losing all welfare benefits.The marginal tax rate is ____ percent.

A) 0.2
B) 0.10
C) 2.0
D) 0.5

Question 70

Suppose a poverty program provides a basic benefit of $6,000, zero deductions, and a marginal tax rate of 0.6.The breakeven level of income is

A) $10,000.
B) $3,600.
C) $6,000.
D) $2,400.

Question 71

Which of the following statements concerning lower marginal tax rates is correct?

A) They encourage work effort and make more people eligible for welfare benefits.
B) They discourage work effort and make more people eligible for welfare benefits.
C) They encourage work effort and make fewer people eligible for welfare benefits.
D) They discourage work effort and make fewer people eligible for welfare benefits.

Question 72

Suppose a poverty program has a basic benefit of $5,000, zero deductions, and a marginal tax rate of 0.50.The breakeven level of income is

A) $2,500.
B) $25,000.
C) $15,000.
D) $10,000.

Question 73

Welfare costs can be reduced by

A) Decreasing the breakeven level of income.
B) Reducing the marginal tax rate.
C) Increasing earnings disregards.
D) Decreasing the tax elasticity of labor supply.

Question 74

Suppose a poverty program has a basic benefit of $12,000, zero deductions, and a marginal tax rate of 0.80.The breakeven level of income is

A) $12,000.
B) $9,600.
C) $15,000.
D) $2,400.

Question 75

Suppose a poverty program has a basic benefit of $10,000, and a family can earn up to $20,000 before losing all welfare benefits.The marginal tax rate is ____ percent.

A) 2.0
B) 0.5
C) 0.2
D) 0.10

Question 76

Which of the following statements concerning higher marginal tax rates is correct?

A) They encourage work effort and make more people eligible for welfare benefits.
B) They discourage work effort and make fewer people eligible for welfare benefits.
C) They encourage work effort and make fewer people eligible for welfare benefits.
D) They discourage work effort and make more people eligible for welfare benefits.

Question 77

Refer to Figure 34.3.The disincentive to work caused by this welfare program

A) Ends as soon as any income is earned.
B) Ends at $5,000 where benefits equal wages.
C) Ends at $10,000.
D) Exists at all income levels.

Question 78

Refer to Figure 34.4.The implied marginal tax rate in this example is

A) 0 percent.
B) Between 0 and 100 percent.
C) 100 percent.
D) Greater than 100 percent.

Question 79

An assistance program that guarantees a minimum income, regardless of the family's earned income, has a

A) Marginal tax rate of zero percent.
B) Breakeven income level equal to the need standard.
C) Zero disregard.
D) High tax elasticity of labor supply.

Question 80

The breakeven level of income is

A) The amount of welfare benefits that can be received without taxation.
B) The amount of income that can be earned without a loss of welfare benefits.
C) A welfare recipient who is ignored or who does not receive benefits.
D) The highest level of income a household can earn and still receive welfare benefits.