Deck 18: Income Distribution and Poverty

Question 1

In 2014 about 12% of personal income in the United States came from

A) wages and salaries.
B) property income.
C) transfer payments.
D) wage supplements.

Answer 1

wage supplements.

Question 2

All government payments to individuals are called transfer payments.

Answer 2

False

Question 3

Property income generally takes the form of all of the following except

A) transfer payments.
B) interest.
C) profits.
D) dividends.

Answer 3

transfer payments.

Question 4

The largest single transfer program at the federal level is unemployment insurance.

Question 5

What percentage of United States personal income in 2014 came from ownership of property?

A) 9%
B) 28%
C) 51%
D) 64%

Question 6

In 2014 about 9% of personal income in the United States came from

A) wages and salaries.
B) property income.
C) transfer payments.
D) profits.

Question 7

Household income comes from three main sources: wages and salaries, property, and government.

Question 8

Property income takes the form of

A) transfer payments.
B) wages and salaries.
C) profits, interest, dividends, and rents.
D) compensating differentials.

Question 9

In 2014 about 28% of personal income in the United States came from

A) wages and salaries.
B) property income.
C) transfer payments.
D) profits.

Question 10

Households derive the majority of their income from

A) wages and salaries.
B) property.
C) inherited wealth.
D) government transfers.

Question 11

An equal distribution of income would yield a Lorenz curve that is a

A) line lying directly on the horizontal axis.
B) line lying directly on the vertical axis at 0%.
C) 45-degree line between 0 and 100%.
D) line lying directly on the vertical axis at 100%.

Question 12

The $1,000 you earned last year on your money market fund is an example of

A) property income.
B) transfer income.
C) inheritance income.
D) human capital income.

Question 13

Transfer payments tend to ________ when overall economic growth is ________.

A) rise; high
B) fall; low
C) rise; low
D) rise; either high or low

Question 14

What percentage of United States personal income in 2014 came from transfer payments?

A) 9%
B) 28%
C) 51%
D) 64%

Question 15

The largest single transfer program at the federal level is

A) farm subsidies.
B) unemployment compensation.
C) Social Security.
D) the agricultural support program.

Question 16

The two main sources of household income are wages/salaries and property income.

Question 17

In 2014 about 51% of personal income in the United States came from

A) wages and salaries.
B) property income.
C) transfer payments.
D) profits.

Question 18

Wages and salaries (including wage supplements) accounted for ________ of personal income in the United States in 2014.

A) 37%
B) 50%
C) 63%
D) 90%

Question 19

As income becomes more unequally distributed, the Lorenz curve ________ and ________.

A) moves further down to the right; the shaded area increases
B) moves further up to the left; the shaded area decreases
C) moves further up to the left, rising above the 45 degree line; the shaded area increases
D) moves further down to the right; the shaded area decreases

Question 20

The $4,500 you earned last year in dividend payments is an example of ________ income.

A) property
B) transfer
C) inheritance
D) human capital

Question 21

A Gini coefficient of one means that

A) income is distributed equally.
B) one family has all the income and everyone else has nothing.
C) all the income is received by the top 20% of families.
D) the income is split equally between the top 20% and the rest of the distribution.

Question 22

The ________ is a commonly used measure of the degree of inequality in an income distribution.

A) Herfindahl-Hirschman index
B) Gini coefficient
C) Lorenz curve
D) utility possibility frontier

Question 23

The income distribution has become more unequal in the United States over the last 30 years.

Question 24

An ________ distribution of income would yield a ________ curve that was a 45-degree line between 0 and 100%.

A) equal; Gini
B) unequal; Gini
C) equal; Lorenz
D) unequal; Lorenz

Question 25

As income becomes more equally distributed, the Lorenz curve ________ and ________.

A) moves further down to the right; the shaded area increases
B) moves further up to the left; the shaded area decreases
C) moves further up to the left rising above the 45 degree line; the shaded area increases
D) moves further down to the right; the shaded area decreases

Question 26

Refer to the information provided in Figure 18.1 below to answer the question(s) that follow. Figure 18.1
Refer to Figure 18.1. Suppose that the Lorenz curve ran along the horizontal axis to 100% of families, then became vertical to 100% of income. This would mean that

A) the distribution of income is perfectly equitable.
B) the distribution of income is completely inequitable.
C) only one family earned all the income.
D) the distribution of income is equal.

Question 27

Both Amy and Tom are trained as nurses. Amy makes $35,000 a year working as a nurse in an emergency room in a New York City hospital. Tom makes $20,000 working as a community health nurse in New York City. Which of the following is true?

A) Tom is clearly worse off than Amy, because he earns $15,000 a year less.
B) Tom must be better off than Amy if he is willing to take a job at $15,000 a year less than Amy.
C) From this information it cannot be determined who is better off because income is an imperfect measure of well-being.
D) Even though income is an imperfect measure of well-being, Amy and Tom must be equally well off because either is free to switch jobs.

Question 28

A Gini coefficient of zero means that

A) the income is equally distributed.
B) one person has all the income and everyone else has nothing.
C) all the income is received by the top 20% of families.
D) the income is split equally between the top 20% and the rest of the distribution.

Question 29

As the distribution of income becomes more equal, the Lorenz curve comes closer to the 45-degree line.

Question 30

Refer to the information provided in Figure 18.1 below to answer the question(s) that follow. Figure 18.1
Refer to Figure 18.1. The third fifth of families earned ________% of income in Outland.

A) 12
B) 23
C) 25
D) 35

Question 31

The Gini coefficient is

A) the most common way of representing the income distribution graphically.
B) a commonly used measure of the degree of inequality in an income distribution.
C) a commonly used measure of the degree of inequity in a property distribution.
D) the ratio of the percentage of total income received by the top 20% of families to the percentage of total income received by the bottom 20% of families.

Question 32

Refer to the information provided in Figure 18.1 below to answer the question(s) that follow. Figure 18.1
Refer to Figure 18.1. The second-wealthiest fifth of families earned ________% of income in Outland.

A) 17
B) 25
C) 60
D) 95

Question 33

Refer to the information provided in Figure 18.1 below to answer the question(s) that follow. Figure 18.1
Refer to Figure 18.1. The wealthiest fifth of families earned ________% of income in Outland.

A) 20
B) 40
C) 60
D) 95

Question 34

Refer to the information provided in Figure 18.1 below to answer the question(s) that follow. Figure 18.1
Refer to Figure 18.1. Suppose that the Lorenz curve ________. This would mean that the distribution of income is equal.

A) was above the 45-degree line OB
B) was below the 45-degree line OB
C) was perfectly vertical
D) was the same as the 45-degree line OB

Question 35

Both Claudia and Javier are certified educators. Claudia makes $55,000 a year working as a teacher in a public high school in Chicago. Javier makes $40,000 working as a grade school teacher in a private school in Chicago. Which of the following is true?

A) Javier is clearly worse off than Claudia, because he earns $15,000 a year less.
B) Javier must be better off than Claudia if he is willing to take a job at $15,000 a year less than Claudia.
C) From this information it cannot be determined who is better off because income is an imperfect measure of well-being.
D) Even though income is an imperfect measure of well-being, Claudia and Javier must be equally well off because either is free to switch jobs.

Question 36

Refer to the information provided in Figure 18.1 below to answer the question(s) that follow. Figure 18.1
Refer to Figure 18.1. Suppose that the Lorenz curve ran along the ________ to 100%, then became ________ to 100%. This would mean that only one family earned all the income.

A) X-axis; vertical
B) X-axis; horizontal
C) Y-axis; vertical
D) Y-axis; horizontal

Question 37

A Gini coefficient of ________ means that one family has all the income and everyone else has nothing.

A) 0
B) 1
C) 100
D) infinity

Question 38

Refer to the information provided in Figure 18.1 below to answer the question(s) that follow. Figure 18.1
Refer to Figure 18.1. The second poorest fifth of families earned ________% of income in Outland.

A) 5
B) 7
C) 12
D) 17

Question 39

A Gini coefficient of ________ means that the income is equally distributed.

A) 0
B) 1
C) 50
D) 100

Question 40

Refer to the information provided in Figure 18.1 below to answer the question(s) that follow. Figure 18.1
Refer to Figure 18.1. Suppose that the Lorenz curve were the same as the 45-degree line OB. This would mean that

A) the distribution of income is perfectly equitable.
B) the distribution of income is completely inequitable.
C) only one family earned all the income.
D) the distribution of income is equal.

Question 41

Upon graduation, Ellie had two job offers. The jobs were identical in every way with two exceptions. One job was located in San Diego, CA and offered an annual salary of $50,000. The other job was located in Omaha, NE and offered an annual salary of $60,000. The salary difference is due to

A) compensating differentials.
B) discrimination.
C) transfer payments.
D) the firm in California had a higher demand for workers than the firm in Nebraska.

Question 42

A Gini coefficient of 0.25 represents less inequality in income distribution than a Gini coefficient of 0.4.

Question 43

In the United States most people's wealth comes from

A) inheritance.
B) transfer payments.
C) saving.
D) profits.

Question 44

Related to the Economics in Practice on page 371: Considerable evidence suggests that recently in the United States, executive compensation has ________ and the real wage of the average worker has ________.

A) increased; decreased
B) decreased; increased
C) increased; remained stagnant
D) remained stagnant; decreased

Question 45

All Pittsburgh police officers must go through the same training program, but police officers assigned to the narcotics squad earn 10% more than police officers assigned to guard the city courthouse. This 10% difference in pay is an example of a

A) human capital differential.
B) compensating differential.
C) transfer payment.
D) utility differential.

Question 46

Evidence suggests that in the last several decades, technology has played a role in driving inequality. Thus, ________ may be key to reducing inequality in the future.

A) education
B) savings
C) research and development
D) investment

Question 47

Paula was born with an aptitude for learning languages. This aptitude is an example of

A) a compensating differential.
B) human capital.
C) property.
D) natural capital.

Question 48

Lydia was born with an aptitude for composing music. This aptitude is an example of

A) a compensating differential.
B) human capital.
C) property.
D) natural capital.

Question 49

Wage and property income before transfers and taxes is known as market income.

Question 50

Earning a doctorate in environmental economics is an example of

A) a Pareto good.
B) a compensating differential.
C) economic income.
D) an investment in human capital.

Question 51

The demand for Alaskan fishermen is the same as the demand for deep-sea divers in Hawaii. The annual earnings of Alaskan fishermen is 30% higher than the earnings of Hawaiian deep-sea divers. What is a possible explanation for this?

A) Alaskan fishermen can work only part of the year, but deep-sea divers can work year round in Hawaii.
B) The amount of human capital needed to be a deep-sea diver must be greater than the amount of human capital necessary to be a fisherman in Alaska.
C) Alaskan fishermen must face discrimination that is not encountered by Hawaiian deep-sea divers.
D) Being a fisherman in Alaska must be more dangerous than being a deep-sea diver in Hawaii.

Question 52

Which of the following is an example of a compensating differential?

A) A plastic surgeon must train for five more years than an internist and on average plastic surgeons earn 40% more per year than internists.
B) A bank hires both men and women who have just graduated from college. The women are assigned positions as bank tellers, and the men are assigned to the management training program.
C) It takes the same amount and type of training to be either a prison guard or a parole officer. Prison guards earn about 15% more than parole officers with the same amount of experience. About 3% of prison guards, but only 1% of parole officers, are injured on the job each year.
D) Bill was injured on the job and as a result of his injuries he can no longer work. He now qualifies for $1,000 a month in disability payments.

Question 53

Recall the Economics in Practice on page 368: According to a study discussed in the Economics in Practice, when students were moved from a class taught by a below-average teacher to one at the 75th percentile, the move

A) made no difference on the students' future annual earnings.
B) increased the students' future earnings by 3.5% per year.
C) increased the students' future earnings by more than 50% per year.
D) actually decreased the students' future annual earnings.

Question 54

A perfectly equal distribution of income would result in a Gini coefficient of 1.

Question 55

Professional female basketball players make far less income than do professional male basketball players. Why?

A) gender discrimination
B) The supply of female players is far greater than the supply of male players.
C) The demand for female players is far less than the demand for male players.
D) compensating differentials

Question 56

A Gini coefficient of 0.1 represents more inequality in income distribution than a Gini coefficient of 0.9.

Question 57

Earning a master's degree in Engineering is an example of

A) a Pareto good.
B) a compensating differential.
C) economic income.
D) an investment in human capital.

Question 58

Individuals with more experience tend to earn more than individuals with less experience. This is because

A) experience is a compensating differential.
B) experience on the job increases an individual's human capital.
C) it is only fair that a more-experienced worker be paid more than a less-experienced worker.
D) the government requires that more-experienced workers be paid more than less-experienced workers.

Question 59

Households acquire property through

A) inheritance only.
B) savings and inheritance.
C) savings only.
D) supplying labor in the labor market.

Question 60

On-the-job-training is an example of

A) an investment in human capital.
B) a compensating wage differential.
C) economic income.
D) income redistribution.

Question 61

Upon graduation, Shawntae had two job offers. The jobs were identical in every way with two exceptions. One job was located in Ft. Lauderdale, FL and offered an annual salary of $95,000. The other job was located in Tulsa, OK and offered an annual salary of $72,000. All else equal, the salary difference is due to

A) compensating differentials.
B) discrimination.
C) transfer payments
D) the firm in Florida had a lower demand for workers than the firm in Oklahoma.

Question 62

Human capital can be produced through on-the-job training.

Question 63

Relating to the Economics in Practice on page 371: Considerable evidence suggests that recently in the United States,________ has increased and ________ has stagnated.

A) the real wage; the nominal wage
B) the nominal wage of the average worker; executive compensation
C) executive compensation; the real wage of the average worker
D) the real wage for women; the real wage for men

Question 64

Human capital is a combination of inborn and acquired skills, talent, and knowledge.

Question 65

American workers in Iraq earn hazard pay. This is an example of a compensating differential.

Question 66

Education is an investment in human capital.

Question 67

About 75 percent of American women over the age of 16 are in the labor force.

Question 68

The stock of knowledge, skills, and talents that people possess is called personal capital.

Question 69

For most families, a majority of their property comes from

A) redistribution programs.
B) inheritance.
C) savings.
D) transfer payments.

Question 70

In the United States in 2014, women's wages were 77 percent of men's wages.

Question 71

Employees with less experience tend to earn less than employees with more experience, because

A) experience is a compensating differential.
B) experience on the job increases an employee's human capital.
C) it is only fair that a more-experienced employee be paid more than a less-experienced employee.
D) the government requires that more-experienced employees be paid more than less-experienced employees.

Question 72

The demand for oil rig workers off the coast of Louisiana is the same as the demand for oil pipeline workers in North Dakota. The annual earnings of Louisiana oil rig workers is 22% higher than the earnings of North Dakota oil pipeline workers. A possible explanation for this is

A) Louisiana oil rig workers can work only part of the year, but North Dakota oil pipeline workers can work year round.
B) the amount of human capital needed to be a pipeline worker must be greater than the amount of human capital necessary to be an oil rig worker.
C) Louisiana oil rig workers must face discrimination that is not encountered by North Dakota oil pipeline workers.
D) being an oil rig worker in Louisiana must be more dangerous than being a pipeline worker in North Dakota.

Question 73

Recall the Economics in Practice on p. 368: According to a study discussed in the Economics in Practice, ________ matters in terms of an individual's future earnings.

A) class size
B) the gender of teachers
C) teacher quality
D) the age of teachers

Question 74

All Honolulu law enforcement personnel must go through the same training program, but law enforcement personnel assigned to guard the capital building earn 15% less than law enforcement personnel assigned to the homicide division. This 15% difference in pay is an example of a ________ differential.

A) human capital
B) compensating
C) transfer payment
D) utility

Question 75

A registered nurse in Tulsa, Oklahoma makes a lower wage than an equally skilled registered nurse in San Francisco. This is an example of a compensating differential.

Question 76

Professional male golfers make far more income than do professional female golfers. The reason for the wage difference is

A) gender discrimination.
B) the supply of male golfers is far greater than the supply of female golfers.
C) the demand for male golfers is far greater than the demand for female golfers.
D) compensating differentials.

Question 77

A medical student's internship at a local hospital is an example of

A) an investment in human capital.
B) a compensating wage differential.
C) economic income.
D) income redistribution.

Question 78

In the United States, most people's ________ comes from saving.

A) income
B) profit
C) wealth
D) capital

Question 79

An example of a compensating differential is

A) a cardiologist must train for two more years than a family practitioner and on average cardiologists earn 65% more per year than family practitioners.
B) a police department hires both men and women who have just graduated from college. The men are assigned patrol duty, and the women are assigned desk jobs.
C) it takes the same amount and type of training to be either a paramedic or an emergency room nurse. Paramedics earn about 25% more than emergency room nurses with the same amount of experience. About 12% of paramedics, but only 3% of emergency room nurses, are injured on the job each year.
D) Paulie was injured on the job at a tanning salon and as a result of his injuries he can no longer work. He now qualifies for $1,600 a month in disability payments.

Question 80

Evidence suggests that in the last several decades, technology has played a role in driving inequality. Thus, greater access to education may be key to ________ in the future.

A) reducing inequality
B) increasing inequality
C) reducing equality
D) eliminating equality