Deck 20: Income Inequality and Poverty

Question 1

The United States has more income inequality than Brazil and South Africa.

Answer 1

False

Question 2

Even though the average income in the United States has continued to grow, the poverty rate has increased to over 20% since the early 1970s.

Answer 2

False

Question 3

A U.S. family earning $80,000 would be in the top 20 percent of income distribution in 2011.

Answer 3

False

Question 4

The poverty line is an absolute standard and is based on the cost of providing an adequate diet.

Question 5

The United States has more income inequality than Japan, Germany, and France.

Question 6

Since 1970 the United States' income distribution has become more equal.

Question 7

Among all countries in the world, the United States has the most income inequality.

Question 8

In the United States from 1935 to 2011 the share of total income earned by the bottom fifth of income earners rose and then fell.

Question 9

When the government enacts policies to make the distribution of income more equitable, it distorts incentives, alters behavior, and makes the allocation of resources less efficient.

Question 10

The measured poverty rate may not reflect the true extent of economic deprivation because it does not include some forms of government assistance.

Question 11

In the United States in 2011, the bottom fifth of the income distribution had incomes below $27,218.

Question 12

The United States has a more equal income distribution than many developing economies such as Mexico, South Africa, and Brazil.

Question 13

The poverty line is set by the government so that 10 percent of all families fall below that line and are thereby classified as "poor."

Question 14

The invisible hand of the marketplace acts to allocate resources efficiently, but it does not necessarily ensure that resources are allocated fairly.

Question 15

An income distribution may not give an accurate picture of the standard of living for the poor because it does not include in-kind transfers.

Question 16

In 2011 the top 20% of income earners accounted for over 80% of all income received by United States' families.

Question 17

The top 5 percent of U.S. annual family income in 2011 was $205,200 or more.

Question 18

The United States has a more unequal income distribution than many other developed countries such as Japan and Germany.

Question 19

In 2011 the top 5 percent of income earners accounted for over 50% of all income received by United States' families.

Question 20

Despite continued growth in average income since the early 1970s, the poverty rate has not declined below the level reached in 1973.

Question 21

According to a study by Michael Cox and Richard Alm, consumption per person in the richest 20% of households was only 2.1 times consumption per person in the poorest 20% of households.

Question 22

The maximin criterion is the idea that the government should aim to maximize the well-being of the worst-off person in society.

Question 23

The economic life cycle describes how young people usually have higher savings rates than middle-aged people.

Question 24

John Rawls, who developed the way of thinking called liberalism, argued that government policies should be aimed at maximizing the sum of utility of everyone in society.

Question 25

Standard measurements of the degree of income inequality take both money income and in-kind transfers into account.

Question 26

Many economists believe that a family bases its spending decisions on its permanent, or average, income rather than on transitory income.

Question 27

Most economists believe that a family bases its spending decisions on its transitory income.

Question 28

If a government could successfully achieve the maximin criterion, each member of society would have an equal income.

Question 29

According to libertarians, the government should redistribute income from rich individuals to poor individuals to achieve a more equal distribution of income.

Question 30

The utilitarian justification for redistributing income is based on the assumption of diminishing marginal utility.

Question 31

About four out of five millionaires in the United States earned their money rather than inherited it.

Question 32

A follower of liberalism would not support a redistribution of income but rather would focus on equalizing opportunities.

Question 33

There is very little economic mobility in the United States, which means that once a family is poor, it is very likely to remain poor for at least a decade.

Question 34

Fewer than three percent of families are poor for eight or more years.

Question 35

The poverty line is based on the percentage of people who cannot afford an adequate diet.

Question 36

Utilitarians believe that the proper goal of the government is to maximize the sum of the utilities of everyone in society.

Question 37

The poverty rate is an absolute level of income set by the federal government for each family size. A family with income below this rate is deemed to be in poverty.

Question 38

About half of black and Hispanic children in female-headed households live in poverty.

Question 39

The elderly represent the largest demographic group in poverty.

Question 40

The poverty rate is the percentage of the population whose family income falls below the poverty line..

Question 41

The Supplemental Security Income (SSI) program focuses on the poor who are sick or disabled.

Question 42

Which of the following statements is not correct?

A)Libertarians are opposed to redistributing income.
B)Critics of the welfare system argue that it breaks up families.
C)One of the problems with measuring income inequality is valuing in-kind transfers.
D)Utilitarians believe that the government should punish crimes but should not redistribute income.

Question 43

Critics argue that a disadvantage of minimum-wage laws is that they do not effectively target the working poor because many minimum-wage workers are the teenage children of middle-income families.

Question 44

Temporary Assistance for Needy Families (TANF) is an example of a negative income tax program.

Question 45

An advantage of a negative income tax is that it does not encourage the breakup of families because the only criterion for assistance is family income.

Question 46

Scenario 20-8
Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability:
Taxes owed = (1/4 of income) - $14,000
​
​
The ancient Greek philosopher, Plato, concluded that in an ideal society the income of the richest person

A)would be equal to the income of the poorest person.
B)would be no more than four times the income of the poorest person.
C)would be reflective of the effort put forth by that person.
D)would be taxed at a higher rate than the income of the poorest person.

Question 47

One existing government program that works much like a negative income tax is Medicaid.

Question 48

Critics argue that a disadvantage of the Earned Income Tax Credit is that it does not effectively target the working poor because many recipients are the teenage children of middle-income families.

Question 49

A disadvantage of the Earned Income Tax Credit (EITC) program is that it does not help alleviate poverty due to unemployment, sickness, or other inability to work.

Question 50

One existing government program that works much like a negative income tax is the Earned Income Tax Credit.

Question 51

Scenario 20-8
Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability:
Taxes owed = (1/4 of income) - $14,000
​
​
Refer to Scenario 20-8. This negative income tax ensures that families earn at least $56,000​.

Question 52

Scenario 20-8
Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability:
Taxes owed = (1/4 of income) - $14,000
​
​
Refer to Scenario 20-8. The government does not receive any tax revenue through this negative income tax if the family with the highest income earns $56,000.

Question 53

Libertarians believe that the government should enforce individual rights to ensure that all people have the same opportunities to use their talents to achieve success.

Question 54

The best government policy to reduce poverty is

A)a minimum wage law because the resulting unemployment is small in comparison to the benefits to people it helps.
B)an expanded welfare program because people must have an additional "need" such as small children or a disability.
C)an in-kind transfer because it ensures that the poor receive what they need most such as food or shelter.
D)not obvious. Government programs to reduce poverty have many advantages but also many disadvantages.

Question 55

Scenario 20-8
Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability:
Taxes owed = (1/4 of income) - $14,000
​
​
Refer to Scenario 20-8. A family earning $56,000 before taxes will have $56,000 after tax.​

Question 56

Which of the following statements is not correct?

A)Two key elements of welfare reform are work requirements and limiting the time that recipients can receive benefits.
B)The Earned Income Tax Credit (EITC) is very similar to a negative income tax.
C)Minimum wage laws will likely increase unemployment.
D)The elderly are more likely to be poor than single mothers.

Question 57

A goal of libertarians is to provide citizens with equal opportunities rather than to ensure equal outcomes.

Question 58

Scenario 20-8
Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability:
Taxes owed = (1/4 of income) - $14,000
​
​
Refer to Scenario 20-8. The government does not have to pay a subsidy to any family through this negative income tax if the family with the lowest income earns $50,000.

Question 59

Scenario 20-8
Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability:
Taxes owed = (1/4 of income) - $14,000
​
​
Refer to Scenario 20-8. A family earning $40,000 before taxes will owe tax.​

Question 60

Which of the following statements is correct?

A)Followers of the liberalism political philosophy believe that society should maximize the total of individual utilities.
B)The poverty line is adjusted for regional differences in the costs of raising children.
C)One advantage to the Earned Income Tax Credit (EITC) is that it benefits the working poor.
D)Libertarians pursue policies to redistribute income from the rich to the poor.

Question 61

When designing public policies, which income group would philosopher John Rawls argue needs the most attention?

A)Individuals located in the bottom fifth of the income distribution.
B)Individuals located at the average income level.
C)Individuals located in the top fifth of the income distribution.
D)Individuals located in the top five percent of the income distribution.

Question 62

Critics of the minimum wage argue that

A)labor demand is inelastic so firms can adjust production.
B)too many older employees benefit at the expense of teenage workers.
C)many minimum-wage earners are teenagers from middle-class families.
D)All of the above are correct.

Question 63

Which of the following statements is not correct?

A)An advantage of an in-kind transfer is that it prevents an alcoholic from spending a cash benefit on alcohol.
B)An advantage of the Supplemental Security Income (SSI) program is that it benefits the sick and disabled.
C)An advantage of a negative income tax program is that the poor must work to be eligible.
D)Minimum wage laws result in higher unemployment among those groups of workers affected by the minimum wage.

Question 64

Which of the following programs to alleviate poverty would be most favored by philosopher Robert Nozick and why?

A)A negative income tax because it would maximize the minimum income of members of society.
B)An Earned Income Tax Credit (EITC) because a policy that rewards the working poor would be the most just.
C)An in-kind transfer program because it would maximize the total utility of all members of society.
D)None of the programs would be favored because each of them forcibly redistributes income that was fairly, if not equally, earned.

Question 65

Economists who support minimum-wage legislation are likely to believe that the

A)demand for unskilled labor is relatively inelastic.
B)demand for unskilled labor is relatively elastic.
C)supply of unskilled labor is relatively elastic.
D)supply of unskilled labor is relatively inelastic.

Question 66

Figure 20-5
Refer to Figure 20-5. If the government imposes a minimum wage above W_o, it is likely to

A)increase employment to a level above Q_o.
B)reduce employment to a level below Q_o.
C)provide more income to the working poor than they collectively received before the minimum wage was set.
D)have no effect on employment.

Question 67

A binding minimum wage

A)affects employees but not employers.
B)lowers the productivity of workers.
C)raises the cost of labor to firms.
D)All of the above are correct.

Question 68

Which of the following statements is correct?

A)A disadvantage of a minimum-wage law is that it may benefit unskilled workers who are not low-income workers.
B)A disadvantage of a negative income tax program is that a poor person who chooses not to work many hours would receive a cash benefit.
C)A disadvantage of an Earned Income Tax Credit (EITC) is that a person who is unable to work due to a disability does not benefit from the program.
D)All of the above are correct.

Question 69

Which of the following statements about the minimum wage is correct?

A)An increase in the minimum wage enhances the well-being of all unskilled workers.
B)An increase in the minimum wage has no effect on the well-being of middle-class families.
C)Advocates of the minimum wage argue that the demand for labor is relatively inelastic.
D)Critics of the minimum wage argue that it is an undesirable way of helping the poor because it is costly to the government.

Question 70

Binding minimum-wage laws

A)are costly for the government to impose.
B)force a market imbalance between the supply and demand for labor.
C)have the potential to provide benefits to all poor people, whereas a negative tax can only benefit some poor people.
D)do not affect segments of the population who are not poor.

Question 71

Figure 20-5
Refer to Figure 20-5. An effective minimum wage would be set at a level

A)above W_o, and employment would rise above Q_o.
B)above W_o, and employment would fall below Q_o.
C)below W_o, and employment would rise above Q_o.
D)below W_o, and employment would fall below Q_o.

Question 72

Which of the following statements is correct?

A)A minimum wage law will result in less additional unemployment if labor demand is elastic rather than inelastic.
B)An in-kind transfer allows a person to use the benefit to purchase whatever they think they need most.
C)If a tax policy states that taxes owed equal 1/3 of income less $15,000, a person earning $25,000 per year would owe $6,666.67 in taxes.
D)Welfare reform enacted in 1996 limited the amount of time recipients could stay on welfare.

Question 73

Many Democrats support raising the U.S. minimum wage. Critics of raising the minimum wage argue that minimum-wage laws are

A)too expensive for local governments to fund.
B)too expensive for local governments to administer.
C)imprecise in their ability to help the working poor.
D)easy for businesses to pay.

Question 74

Supporters of raising the minimum wage argue that minimum-wage laws are

A)a tax-free way to help the working poor. Businesses bear the burden of paying higher wages, not the government.
B)better than the Earned Income Tax Credit (EITC) in targeting the working poor. The EITC may benefit teenagers from middle-class families who work summer jobs at the minimum wage.
C)better than in-kind transfers such as food stamps in providing food rather than unhealthy items such as drugs or alcohol.
D)a way to increase employment of those likely to earn the minimum wage.

Question 75

Minimum wage laws

A)benefit all unskilled workers.
B)create unemployment, but if demand is relatively elastic, the unemployment effects will be minor.
C)may help the nonpoor, such as teenagers from wealthy families.
D)reduce poverty by reducing unemployment.

Question 76

Which of the following programs would be opposed by philosopher John Rawls?

A)a negative income tax
B)the Supplemental Security Income (SSI) program
C)a tax plan creating a perfectly egalitarian income distribution
D)Rawls would oppose all of the programs.

Question 77

Which of the following programs to alleviate poverty would be most favored by philosopher Robert Nozick?

A)a negative income tax
B)an Earned Income Tax Credit (EITC)
C)an in-kind transfer program
D)None of the programs would be favored by Nozick.

Question 78

Refer to Scenario 20-3. Assuming that utility is directly proportional to the cash value of after-tax income, which government policy would an advocate of libertarianism prefer?

A)Plan A
B)Plan B
C)either Plan A or Plan B
D)neither Plan A nor Plan B because any plan that forcibly redistributes income is against the philosophy

Question 79

Refer to Scenario 20-3. Assuming that utility is directly proportional to the cash value of after-tax income, which government policy would an advocate of liberalism prefer?

A)Plan A
B)Plan B
C)either Plan A or Plan B
D)neither Plan A nor Plan B because any plan that forcibly redistributes income is against the philosophy

Question 80

Scenario 20-3
Suppose that a society is made up of five families whose incomes are as follows:
$120,000; $90,000; $30,000; $30,000; and $18,000.
The federal government is considering two potential income tax plans:
Plan A is a negative income tax plan where the taxes owed equal 1/3 of income minus $20,000.
Plan B is a two-tiered plan where families earning less than $35,000 pay no income tax and families earning more than $35,000 pay 10% of their income in taxes. The income tax revenue collected from those families earning over $35,000 is then redistributed equally to those families earning less than $35,000.
Refer to Scenario 20-3. Assuming that utility is directly proportional to the cash value of after-tax income, which government policy would an advocate of utilitarianism prefer?

A)Plan A
B)Plan B
C)either Plan A or Plan B
D)neither Plan A nor Plan B because any plan that forcibly redistributes income is against the philosophy