Deck 21: Income Inequity and Poverty

Question 1

Income inequality is something that occurs in all countries.

Answer 1

True

Question 2

If cash is transferred to the poor, this is known as an in-kind transfer.

Answer 2

False

Question 3

If anti-poverty programs generate high marginal tax rates they may end up discouraging people from working.

Answer 3

True

Question 4

Rawls would determine the distribution of income as if we were behind a veil of ignorance that prevented us from knowing our own stations in life.

Question 5

Trends over time support the view that the decline of the two-parent family is largely the effect of the welfare system.

Question 6

The invisible hand of the marketplace acts to allocate resources efficiently as well as equitably.

Question 7

The maximin criterion holds that public policies should aim to minimise the well-being of the most-fortunate person in society.

Question 8

Because people can borrow and save to smooth out life-cycle changes in income, their standard of living in any year depends more on lifetime income than on that year's income.

Question 9

Political philosophers agree in their views about the role of government in altering the distribution of income.

Question 10

Many policies to help the poor are effective at encouraging the poor to escape from poverty.

Question 11

Although economic growth has raised the income of the typical family, the increase in inequality has prevented the poorest families from sharing in this greater economic prosperity.

Question 12

In gauging the inequality of living standards, annual income is more relevant than permanent income.

Question 13

Poverty is correlated with race, age and family composition.

Question 14

The distortionary effect of government redistribution programs is analogous to filling a well with a leaky bucket.

Question 15

Libertarians conclude that equality of incomes is more important than equality of opportunity.

Question 16

According to utilitarians, the government should continue to redistribute income until everyone in society has exactly the same income.

Question 17

When a family has the ability to save and borrow, it is more likely to be able to buffer itself from transitory changes in income.

Question 18

A measure of permanent income would be similar to a person's average or 'normal' income.

Question 19

According to utilitarianism, the government should choose policies to maximise the total utility of everyone in society.

Question 20

One way to measure the poverty rate is by calculating the percentage of the population whose family income is below the poverty line.

Question 21

In-kind transfers are:

A) non-monetary goods and services given to the poor
B) benefits that are transferred to the rich
C) provided by kindly and caring people
D) obtained primarily by the middle class

Question 22

Evidence suggests that the women's movement has:

A) decreased income inequality across households
B) increased income inequality across households
C) had no effect on the distribution of income across households
D) decreased the importance of traditional measures of income inequality

Question 23

Measures of poverty that fail to account for the value of in-kind transfers:

A) understate the actual poverty rate
B) have little effect on the validity of reported poverty rates
C) are generally more reliable in accounting for annual variation in actual poverty rates
D) overstate the actual poverty rate

Question 24

People have their highest saving rates when they are:

A) young and single
B) married with young children
C) middle-aged
D) retired

Question 25

Which of the following factors is correlated with poverty? (i) age
(ii) race
(iii) family composition

A) (i) and (ii)
B) (i) and (iii)
C) (ii) and (iii)
D) (i), (ii) and (iii)

Question 26

Suppose a government enacts policies that redistribute income. Which of the following statements is true? (i) incentives will be distorted
(ii) people are likely to alter their market behaviour
(iii) a fair distribution of income is ensured

A) (i) only
B) (i) and (ii)
C) (ii) and (iii)
D) (i) and (iii)

Question 27

Over the past few years, growth in average income has:

A) failed to decrease the poverty rate
B) decreased the poverty rate
C) eliminated poverty
D) increased the poverty rate in some years and decreased it in other years

Question 28

Economists refer to the regular pattern of income variation over a person's lifetime as the:

A) life pattern effect
B) cyclical redundancy effect
C) periodic cycle effect
D) life cycle effect

Question 29

The income distribution in a society is:

A) mostly determined by government taxation policies
B) mostly determined by rental income
C) mostly determined by the geographical location of taxpayers
D) mostly determined by factors that determine wages

Question 30

According to the Henderson Commission, the poverty line in Australia was set at:

A) 25 per cent of average weekly earnings
B) 56.5 per cent of average weekly earnings
C) 65.5 per cent of average weekly earnings
D) 75 per cent of average weekly earnings

Question 31

Which of the following is an explanation of why high-income men are increasingly likely to marry high-income women? (i) the women's movement
(ii) the urbanisation of society
(iii) comparable worth legislation

A) (i) only
B) (i) and (ii)
C) (i) and (iii)
D) (ii) and (iii)

Question 32

In general, the invisible hand of a competitive market acts to allocate resources:

A) fairly, but not necessarily efficiently
B) both efficiently and fairly
C) efficiently, but not necessarily fairly
D) neither efficiently nor fairly

Question 33

A comparison of measures of household income equality across countries:

A) reveals the structure of income accounting procedures
B) is difficult due to differences in how data are collected
C) is impossible, since each country measures income in a different currency
D) is relatively simple since international agreements require countries to standardise their income accounting procedures

Question 34

A person's earnings depend on:

A) how well the economy is doing
B) whether or not the economy is experiencing inflation
C) the supply and demand for that person's labour
D) how much profit that person's employer is able to make

Question 35

Under a negative income tax, it is likely for a person who does not earn income to receive assistance from the government.

Question 36

Advocates of direct cash payment assistance to the poor argue that although in-kind transfers are generally respectful of individual preferences, such transfers are inefficient.

Question 37

Income inequality in an economy is traditionally measured by:

A) calculating the bell curve of ability, effort and chance that exists in an economy
B) calculating the percentage of families that fall into broad income classifications
C) referring to standard international distribution tables
D) using something like the normal distribution

Question 38

Minimum-wage legislation is likely to be least effective in reducing poverty when the demand for labour is inelastic.

Question 39

Measuring poverty using an absolute income scale (like the poverty line) is likely to be deceptive because:

A) income is not correlated with job satisfaction
B) the poor are not likely to participate in the labour market
C) income measures don't include the value of in-kind transfers
D) money is more highly valued by the poor than by the rich

Question 40

Suppose income was equally distributed across all families, then:

A) 60 per cent of the families would receive exactly 60 per cent of the income
B) the relative share of income would decline as the number of families are increased
C) the relative share of income would increase as the number of families are increased
D) all families would more likely be rich than poor

Question 41

The utilitarian case for redistributing income is based on the assumption of:

A) a notion of fairness engendered by equality
B) diminishing marginal utility
C) rising marginal utility
D) collective consensus

Question 42

When the government taxes income as part of a redistribution program:

A) the rich always benefit more than the poor
B) the poor pay higher taxes
C) incentives to earn income are diminished
D) incentives for the poor to work are enhanced

Question 43

The life cycle effect characterises a lifetime income profile in which income:

A) falls during the early years of market activity and peaks at retirement
B) rises and falls in conjunction with the business cycle
C) rises as a worker gains maturity and experience
D) tends to follow a seasonal pattern

Question 44

Whether or not policymakers should try to make our society more egalitarian is largely a matter of:

A) political philosophy
B) economic efficiency
C) altruistic concern for others
D) common sense

Question 45

A family's ability to buy goods and services depends largely on its:

A) permanent income
B) transitory income
C) lifetime income
D) in-kind transfers

Question 46

Saving and borrowing behaviour is indicative of a family:

A) that has a difficult time balancing its standard of living
B) that is most likely to be on the upper end of the income distribution
C) adjusting its standard of living to reflect transitory changes in income
D) that is most likely to be poor

Question 47

Amy currently earns $80 000 a year, while John earns $30 000 a year. Suppose that both of their incomes are subject to diminishing marginal utility. From a utilitarian perspective taking a dollar from Amy and giving it to John will:

A) lower Amy's marginal utility of income
B) increase John's marginal utility of income
C) increase society's total utility
D) do none of the above

Question 48

Income mobility studies suggest that poverty:

A) is not a long-term problem for most families
B) is a long-term problem for a relatively large number of families
C) cannot be alleviated by government sponsored anti-poverty programs
D) cannot be alleviated by privately sponsored anti-poverty programs

Question 49

Which of the following will occur when government policies to make income distribution more equitable? (i) total utility is constant
(ii) the allocation of resources is less efficient
(iii) incentives are distorted

A) (i)
B) (i) and (ii)
C) (ii) and (iii)
D) (i) and (iii)

Question 50

When incentives to earn income are distorted by income redistribution programs:

A) total income in an economy can fall
B) total aggregate utility in society can fall
C) losses can exceed potential gains from greater equality of income
D) all of the above can occur

Question 51

Because people can borrow when they are young, the life cycle theory would suggest that a standard of living depends on:

A) aggregate income rather than annual personal income
B) income averaged across seasons rather than across years
C) annual extended family income rather than annual personal income
D) lifetime income rather than annual income

Question 52

A permanent income theory suggests that a person's income is composed of predictable life cycle variation and:

A) permanent changes that reflect the seasonal capacity of the economy
B) structural change in the economy
C) aggregate variation resulting from predictable business cycles
D) random and transitory forces in the economy

Question 53

Economic mobility refers to the:

A) ability of families to freely relocate to find good jobs
B) movement of resources from one industry to another
C) government's attempt to distribute monetary assistance to areas most in need
D) movement of people among income classes

Question 54

Founders of utilitarianism include:

A) A. Kondratieff and Thomas Malthus
B) Augustin Cournot and Jean B. Say
C) A. C. Pigou and John Maynard Keynes
D) Jeremy Bentham and John Stuart Mill

Question 55

The concept of utility is fundamental to utilitarianism and describes the:

A) method whereby wealth is stored
B) method by which society chooses to allocate resources
C) optimal distribution of wealth in society
D) level of satisfaction derived from a person's circumstances

Question 56

The concept of diminishing marginal utility is embodied in the utilitarian rationale for:

A) enhancing market efficiency
B) redistributing income
C) trickle-down effects
D) maintaining the status quo income distribution

Question 57

Which of the following is a cause of movement of individuals among income classes? (i) hard work
(ii) laziness
(iii) chance

A) (i) and (ii)
B) (i) and (iii)
C) (ii) and (iii)
D) (i), (ii) and (iii)

Question 58

According to utilitarians, the ultimate objective of private and public actions is to:

A) ensure an egalitarian distribution of income
B) provide for the betterment of the poor
C) maximise the sum of individual utility
D) enhance the income of the rich

Question 59

An example of a transitory change in income is:

A) the increase in income that results from a job promotion linked to your education
B) the increase in income of California orange growers that results from an orange-killing frost in Florida
C) the annual cost of living adjustment to your salary
D) all of the above

Question 60

Diminishing marginal utility suggests that:

A) the poor receive more satisfaction than the rich from the last dollar they respectively spend
B) more is always preferred to less
C) the poor are less efficient at spending money than the rich
D) the wellbeing of society is maximised when the distribution of income is equal

Question 61

As a result of the trade-off between income equality and incentives to work, an optimal redistribution policy:

A) must always achieve a full egalitarian society
B) is only consistent with transfers to the middle class
C) always falls short of a full egalitarian society
D) can never be funded through taxes on wage income

Question 62

A libertarian is likely to argue that:

A) only individual members of society can earn income
B) outcomes always dominate processes
C) society is responsible for ensuring an equal distribution of income
D) government has no role in the economy

Question 63

Rawls argued that behind a 'veil of ignorance':

A) no-one would be considered in an 'original position'
B) justice can never be agreed upon
C) everyone would agree to 'just' rules to reallocate income
D) justice is a matter of political philosophy

Question 64

Economists who support minimum wage legislation are likely to believe that the: (i) demand for unskilled labour is relatively inelastic
(ii) demand for unskilled labour is relatively elastic
(iii) supply of unskilled labour is relatively elastic

A) (i) only
B) (i) and (ii)
C) (i) and (iii)
D) (ii) and (iii)

Question 65

Libertarianism identifies a role for government when:

A) an egalitarian distribution of income is inconsistent with market outcomes
B) attorneys are required to facilitate a free market exchange
C) the income distribution is altered by illegal means (e.g. theft)
D) workers lose their jobs as a result of structural changes in the economy

Question 66

Robert Nozick criticises Rawls' concept of justice by using an example of:

A) the distribution of capital in society
B) a bar-room discussion over justice
C) the grade distribution in an economics class
D) all of the above

Question 67

Evidence suggests that:

A) the best way to deter immigrants is to make legal aliens ineligible for many welfare benefits
B) legislation designed to limit the time a family can be on welfare will never be passed
C) welfare dependency is embraced by over 80 per cent of new welfare recipients
D) the longer a family is on welfare, the harder it is to get off welfare

Question 68

Graph 21-1

Refer to Graph 21-1. According to the graph, if the government imposes a minimum wage below W_o, it is likely to:

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

Question 69

Opponents of legislation that proposes to limit the time a family can receive welfare benefits are most likely to argue that time limits are undesirable because:

A) children will become innocent victims if parents are forced off welfare
B) the money saved will be diverted to defence spending
C) long periods on welfare erode work skills
D) there is no evidence to suggest a pattern of welfare dependency

Question 70

According to the maximin criterion, income can be transferred from the rich to the poor as long as it: (i) enhances the welfare of workers
(ii) promotes an egalitarian distribution of income
(iii) raises the wellbeing of the least fortunate

A) (i) and (ii)
B) (i) and (iii)
C) (ii) and (iii)
D) (iii) only

Question 71

The rule for redistribution proposed by John Rawls in his book A Theory of Justice is called the:

A) optimising agent rule
B) maximal principle
C) maximin criterion
D) 'veil of ignorance' criterion

Question 72

In the parable of the leaky bucket, a fundamental problem with government redistribution programs is identified. As long as the government only has 'leaky buckets' at its disposal:

A) full egalitarian policies will always dominate competing policy options
B) affirmative action programs are doomed to failure
C) equality of economic opportunity is an unattainable goal
D) it should not try to reach complete equality in income

Question 73

Which of the following are common criticisms of government programs designed to assist the poor? (i) they create incentives for people to become 'needy'
(ii) those who receive assistance rarely meet the criterion for eligibility
(iii) they typically account for a majority of annual government expenditures

A) (i) only
B) (i) and (ii)
C) (i) and (iii)
D) (ii) and (iii)

Question 74

Which of the following statements about minimum-wage laws are true? Minimum wages:
(i) force a market imbalance between the supply and demand for labour
(ii) increase the efficiency of labour markets
(iii) are most effective at alleviating poverty when labour demand is highly elastic

A) (i) only
B) (i) and (ii)
C) (i) and (iii)
D) (ii) and (iii)

Question 75

In general, which of the following would libertarians conclude is more important than equality?

A) income
B) entrepreneurial compensation
C) capital compensation
D) opportunity

Question 76

For most government programs that are designed to help the poor:

A) being poor is typically sufficient to qualify for assistance
B) being poor, by itself, is typically not sufficient to qualify for assistance
C) the poor may not receive assistance because the poverty line varies so much that it makes them difficult to identify
D) recipients of government assistance are often declared ineligible to receive assistance from private sources

Question 77

Brian earns more than Lynne. A benevolent legislator has proposed taxing Bill in order to supplement Lynne's income. A libertarian would view this proposal as:

A) an inappropriate role for government, since government cannot morally redistribute income that is not its own
B) a way to enhance Lynne's income in a socially responsible way
C) a way to increase social justice
D) validation of the superiority of a libertarian maximin criterion over Rawlsian social justice

Question 78

According to Rawls, principles of justice are the result of:

A) command-and-control policies
B) domination of the powerful by the weak
C) workers owning the factors of production
D) fair agreement and bargain

Question 79

Graph 21-1

Refer to Graph 21-1. Advocates of minimum wage legislation would suggest that an effective minimum wage would be set at a level:

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

Question 80

The maximin criterion suggests that the focus of social policy would be to:

A) elevate the wellbeing of all workers
B) elevate the wellbeing of those at the bottom of the income distribution
C) ensure an egalitarian distribution of income
D) expropriate the factors of production from the capitalist class