Question 1

Suppose the distribution of innate ability is distributed symmetrically throughout a population but that the wage distribution is positively skewed.What most likely explains this?

Accepted Answer

A)  A regressive tax code.
B)  Decreased immigration.
C)  Differences in human capital accumulation.
D)  A decreasing Gini coefficient.
E)  A non-competitive labor market. C

Question 2

All but which one of the following statements about the Gini coefficient is true?

Accepted Answer

A)  The Gini coefficient reflects the data shown in the Lorenz curve.
B)  The Gini coefficient equals zero when there is perfect equality.
C)  The Gini coefficient increases as income inequality increases.
D)  The Gini coefficient must fall when the amount of income in an economy increases.
E)  The Gini coefficient equals one when there is perfect inequality. D

Question 3

The superstar phenomenon explains why

Accepted Answer

A)  some people are paid extraordinary sums of money for talents that many people have.
B)  a few people are paid extraordinary sums of money for extreme talents that only a few people have.
C)  most people are paid relatively modest sums of money for talents that just a few people have.
D)  superstars have talents that far exceed even the next best person in the field.
E)  there are fewer superstars with the passing of time. B

Question 4

The positive correlation between ability and human capital investments "stretches out" wages in the population, generating what?

Accepted Answer

A)  A positively skewed wage distribution.
B)  A negatively skewed wage distribution.
C)  An inconsistent wage distribution.
D)  A uniform wage distribution.
E)  A symmetric wage distribution.

Question 5

Which of the following is not a possible explanation as to why wage inequality increased markedly over the last 40 years in the United States?

Accepted Answer

A)  There was an increase in the supply of low-skill workers, particularly through immigration.
B)  Federal legislation allowed employers to legally engage in more racial discrimination.
C)  Competition from international economies has increased demand for highly productive workers.
D)  Recent technological changes have been complementary to skilled labor (while substituting for unskilled labor) .
E)  Institutional changes in the United States such as a steady decline in union coverage and a falling real minimum wage have led to changes in the wage distribution.

Question 6

Regression toward the mean is captured by which of the following?

Accepted Answer

A)  The tendency for inequality to be wider as a country experiences economic growth.
B)  The tendency for countries to diverge in their inequality.
C)  The tendency for income differences across families to get smaller over time as the various families move toward the mean income of the population.
D)  The tendency for the 90-50 wage gap to approach the 50-10 wage gap as a country experiences economic growth.
E)  The tendency for the tax code to erode inequality by targeting the mean tax rate to mean income.

Question 7

From 1965 to 2005, the 90-10 wage gap in the United States has

Accepted Answer

A)  held constant at roughly 100.
B)  held constant at roughly 200.
C)  held constant at roughly 200 until 1980 and has steadily increased to about 400 since then.
D)  held constant at roughly 200 until 1980 and has steadily decreased to under 100 since then.
E)  increased steadily from 200 in 1960 to over 500 in 2000.

Question 8

How does the income distribution in the United States compare to other developed countries?

Accepted Answer

A)  The income distribution is vastly more unequal in the United States compared to other developed countries.
B)  The income distribution is vastly more equal in the United States compared to other developed countries.
C)  The income distribution tends to be more unequal in the United States compared to other developed countries, but not by a huge amount.
D)  The income distribution tends to be more equal in the United States compared to other developed countries, but not by a huge amount.
E)  The income distribution must be the same in all developed countries, the United States included, because of increased globalization.

Question 9

In general terms, which of the following statements regarding changes in income inequality in the United States is correct?

Accepted Answer

A)  Inequality has increased over the last 30 years as witnessed by the Gini coefficient increasing from about 0.1 in 1970 to about 0.7 in 2000.
B)  Inequality has increased over the last 30 years as witnessed by the Gini coefficient increasing from about 0.3 in 1970 to about 0.45 in 2000.
C)  Inequality has decreased over the last 30 years as witnessed by the Gini coefficient decreasing from about 0.5 in 1970 to about 0.05 in 2000.
D)  Inequality has decreased over the last 30 years as witnessed by the Gini coefficient decreasing from about 0.8 in 1970 to about 0.25 in 2000.
E)  Inequality has stayed about the same over the last 30 years as witnessed by a Gini coefficient that has hovered around 0.6.

Question 10

Expansions in globalization and the reduction of trade barriers world-wide during the 1980s and 1990s most likely had what effect on the demand for U.S.labor?

Accepted Answer

A)  The demand for unskilled workers increased, while the demand for skilled workers decreased.
B)  The demand for unskilled workers decreased, while the demand for skilled workers increased.
C)  The demand for unskilled and skilled workers increased.
D)  The demand for unskilled and skilled workers decreased.
E)  The demand for unskilled workers increased, while the demand for skilled workers didn't change.

Question 11

Higher values of the Gini coefficient are associated with

Accepted Answer

A)  greater education inequality.
B)  greater income inequality.
C)  less income inequality.
D)  greater labor mobility.
E)  less labor mobility.

Question 12

Large disparities in wages could possibly result from all but which one of the following?

Accepted Answer

A)  Parental investment in a child's human capital.
B)  Increases in the amount of middle class jobs.
C)  Skill-biased technological change.
D)  Globalization.
E)  An increase in the demand for highly skilled labor.

Question 13

What is the approximate Gini coefficient associated with the following income distribution?

Accepted Answer

A)  0.08
B)  0.13
C)  0.23
D)  0.34
E)  0.48

Question 14

Which of the following statements regarding the increase in supply of high-skill labor in the United States since 1960 as measured by education level is not true?

Accepted Answer

A)  The percent of workers without a high school degree has fallen dramatically since 1960.
B)  The percent of workers with a high school degree has fallen dramatically since 1960.
C)  The percent of workers with a college degree has increased dramatically since 1960.
D)  The percent of workers with an advanced degree has increased dramatically since 1960.
E)  The supply of highly-skilled women to the workforce has increased dramatically since 1960.

Question 15

What is meant by the skill-bias technological explanation of increasing inequality?

Accepted Answer

A)  There has been increasing inequality over the last 40 years because unskilled workers use no technology.
B)  There has been increasing inequality over the last 40 years among high-skilled workers.
C)  Inequality has increased because technological advances have not kept pace with the demand for education.
D)  Inequality has increased because technological advances over the last 40 years have complemented the productivity of skilled labor relative to unskilled labor.
E)  Inequality has increased because technological advances over the last 40 years have complemented the productivity of unskilled labor relative to foreign labor.

Question 16

An approximate Lorenz curve shows

Accepted Answer

A)  the maximum and minimum wage gaps.
B)  the relationship between income and tax revenue.
C)  the share of income received by age group.
D)  the relationship between income and earnings potential.
E)  the cumulative share of income earned by quintiles of households.

Question 17

What does it mean for the U.S.economy to have a positively skewed wage distribution?

Accepted Answer

A)  Most workers earn below the average wage.
B)  A large proportion of workers earn very high wages.
C)  The average wage equals the median wage.
D)  The distribution of wages is symmetric around the mean.
E)  The mean wage equals the median wage.

Question 18

What does the Gini coefficient measure?

Accepted Answer

A)  The rate of growth of income inequality over time.
B)  The degree of inequality in an income distribution.
C)  The correlation coefficient between income and education.
D)  The covariance of income and education.
E)  The degree of tax incidence paid by poor workers.

Question 19

Which of the following measures would best allow one to compare the relative wealth of poor households to the typical household in an economy?

Accepted Answer

A)  The perfect-equality Lorenz curve.
B)  The Gini coefficient.
C)  The 90-10 wage gap.
D)  The 50-10 wage gap.
E)  The 90-50 wage gap.

Question 20

In the United States over the last 30 years, wage differentials have

Accepted Answer

A)  narrowed for all groups of workers.
B)  increased for all groups of workers.
C)  increased for skilled workers but have narrowed for unskilled workers.
D)  decreased for skilled workers but have increased for unskilled workers.
E)  increased for women but have narrowed for men.

Exam 7: The Wage Structure