Deck 20: Income Inequality and Poverty

Question 1

Which of the following is correct?

A)Governments can never improve market outcomes.
B)Governments can sometimes improve market outcomes.
C)Governments can always improve market outcomes.
D)Government can never make the income distribution more equal.

Answer 1

B

Question 2

Which of the following statements is correct?

A)The poverty line is a relative standard.
B)More families are pushed above the poverty line as economic growth pushes the entire income distribution upward.
C)Increasing income inequality reduces poverty.
D)Economic growth,by definition,affects all families equally.

Answer 2

B

Question 3

Of the four countries below,the country that has the most income equality is

A)Japan.
B)Brazil.
C)South Africa.
D)the United States.

Answer 3

A

Question 4

Which of the following is most likely to occur when the government enacts policies to make the distribution of income more equal?

A)a more efficient allocation of resources
B)a distortion of incentives
C)unchanged behavior
D)All of the above are correct.

Question 5

Table 20-8 $$\begin{array} { | l | c | c | } \hline \text { Quintile } & \begin{array} { l } \text { Shares of Income by } \\\text { Quintile, 2000 }\end{array} & \begin{array} { l } \text { Shares of Income by } \\\text { Quintile, 2008 }\end{array} \\\hline \text { Bottom Fifth } & 4.3 \% & 4.0 \% \\\hline \text { Second Fifth } & 9.8 \% & 9.6 \% \\\hline \text { Middle Fifth } & 15.5 \% & 15.5 \% \\\hline \text { Fourth Fifth } & 22.8 \% & 23.1 \% \\\hline \text { Top Fifth } & 47.4 \% & 47.8 \% \\\hline\end{array}$$

-Refer to Table 20-8.In 2008,the bottom 60% of families has

A)about 14% of total income in the U.S.
B)about 29% of total income in the U.S.
C)about 50% of total income in the U.S.
D)about 73% of total income in the U.S.

Question 6

Measuring poverty using an absolute income scale like the poverty line can be misleading because

A)income measures do not include the value of in-kind transfers.
B)money is more highly valued by the rich than by the poor.
C)the poor are not likely to participate in the labor market.
D)income measures are not adjusted for the effects of labor-market discrimination.

Question 7

Which of the following represents a problem in measuring inequality?

A)Measurements of income distributions typically include in-kind transfers,which distort the measure of inequality.
B)A normal life-cycle pattern causes inequality in the income distribution but may not reflect inequality in living standards.
C)Transitory income is a better measure of inequality than permanent income.
D)Both a and b are correct.

Question 8

$$\begin{array} { | l | c | c | c | } \hline { \text { Quintile } } & \begin{array} { c } \text { Shares of Income by } \\\text { Quintile, 2000 }\end{array} & \begin{array} { c } \text { Shares of Income by } \\\text { Quintile, 2003 }\end{array} & \begin{array} { c } \text { Shares of Income by } \\\text { Quintile, 2007 }\end{array} \\\hline \text { Bottom Fifth } & 4.3 \% & 4.1 \% & 3.4 \% \\\hline \text { Second Fifth } & 9.8 \% & 9.6 \% & 8.8 \% \\\hline \text { Middle Fifth } & 15.5 \% & 15.5 \% & 14.7 \% \\\hline \text { Fourth Fifth } & 22.8 \% & 23.2 \% & 22.8 \% \\\hline \text { Top Fifth } & 47.4 \% & 47.6 \% & 50.3 \% \\\hline\end{array}$$

-Refer to Table 20-4.In 2007,the top fifth of families have

A)almost 15 times as much income as the bottom fifth of families.
B)96.6% more income than the bottom fifth of families.
C)50.3% more income than the bottom fifth of families.
D)46.9% more income than the bottom fifth of families.

Question 9

Table 20-5 $$\begin{array} { | l | c | } \hline \text { Country } & \text { Gini Coefficient } { } ^ { * } \\\hline \text { Sweden } & 0.240 \\\hline \text { France } & 0.275 \\\hline \text { Italy } & 0.319 \\\hline \text { United Kingdom } & 0.324 \\\hline \text { Portugal } & 0.375 \\\hline \text { Latvia } & 0.387 \\\hline\end{array}$$

-Refer to Table 20-5.Which country has the most equal income distribution?

A)Latvia
B)Italy
C)France
D)Sweden

Question 10

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 measures of actual poverty rates.
D)overstate the actual poverty rate.

Question 11

The poverty line is adjusted each year to reflect changes in the

A)number of people currently on public assistance.
B)level of prices.
C)nutritional content of an "adequate" diet.
D)size of a family.

Question 12

Which of the following is not correct?

A)Poverty is long-term problem for relatively few families.
B)Measurements of income inequality usually do not include in-kind transfers.
C)Measurements of income inequality use lifetime incomes rather than annual incomes.
D)Measurements of income inequality would be more meaningful if they reflected permanent rather than current income.

Question 13

Table 20-8 $$\begin{array} { | l | c | c | } \hline \text { Quintile } & \begin{array} { l } \text { Shares of Income by } \\\text { Quintile, 2000 }\end{array} & \begin{array} { l } \text { Shares of Income by } \\\text { Quintile, 2008 }\end{array} \\\hline \text { Bottom Fifth } & 4.3 \% & 4.0 \% \\\hline \text { Second Fifth } & 9.8 \% & 9.6 \% \\\hline \text { Middle Fifth } & 15.5 \% & 15.5 \% \\\hline \text { Fourth Fifth } & 22.8 \% & 23.1 \% \\\hline \text { Top Fifth } & 47.4 \% & 47.8 \% \\\hline\end{array}$$

-Refer to Table 20-8.In 2008,the top fifth of families has

A)about 12 times as much income as the bottom fifth of families.
B)6.8% more income than the bottom fifth of families.
C)47.8% more income than the bottom fifth of families.
D)96.6% more income than the bottom fifth of families.

Question 14

If income were equally distributed among households,

A)each household's relative share of income would increase.
B)each household's relative share of income would decrease.
C)the top fifth of households would have 50 percent of the income.
D)50 percent of the households would receive exactly 50 percent of the income.

Question 15

$$\begin{array} { | l | c | c | c | } \hline { \text { Quintile } } & \begin{array} { c } \text { Shares of Income by } \\\text { Quintile, 2000 }\end{array} & \begin{array} { c } \text { Shares of Income by } \\\text { Quintile, 2003 }\end{array} & \begin{array} { c } \text { Shares of Income by } \\\text { Quintile, 2007 }\end{array} \\\hline \text { Bottom Fifth } & 4.3 \% & 4.1 \% & 3.4 \% \\\hline \text { Second Fifth } & 9.8 \% & 9.6 \% & 8.8 \% \\\hline \text { Middle Fifth } & 15.5 \% & 15.5 \% & 14.7 \% \\\hline \text { Fourth Fifth } & 22.8 \% & 23.2 \% & 22.8 \% \\\hline \text { Top Fifth } & 47.4 \% & 47.6 \% & 50.3 \% \\\hline\end{array}$$

-Refer to Table 20-4.In 2007,the bottom 60% of families have

A)only 12% of total income in the U.S.
B)only 27% of total income in the U.S.
C)50% of total income in the U.S.
D)73% of total income in the U.S.

Question 16

Of the four countries below,which has the highest degree of income inequality?

A)Japan
B)Brazil
C)South Africa
D)United States

Question 17

A commonly-used gauge of poverty is the

A)income inequality rate.
B)average income rate.
C)poverty rate.
D)social inequality rate.

Question 18

Table 20-5 $$\begin{array} { | l | c | } \hline \text { Country } & \text { Gini Coefficient } { } ^ { * } \\\hline \text { Sweden } & 0.240 \\\hline \text { France } & 0.275 \\\hline \text { Italy } & 0.319 \\\hline \text { United Kingdom } & 0.324 \\\hline \text { Portugal } & 0.375 \\\hline \text { Latvia } & 0.387 \\\hline\end{array}$$

-Refer to Table 20-5.Which country has the most unequal income distribution?

A)Latvia
B)Italy
C)France
D)Sweden

Question 19

Governments enact policies to

A)make the distribution of income more efficient.
B)make the distribution of income more equal.
C)maximize the use of the welfare system.
D)minimize the use of in-kind transfers.

Question 20

The poverty rate is based on a family's

A)income,in-kind transfers,and other government aid.
B)income and in-kind transfers.
C)in-kind transfers only.
D)income only.

Question 21

Which of the following is not correct?

A)Poverty is correlated with race.
B)Poverty is correlated with age.
C)Poverty is correlated with family composition.
D)All of the above are correct.

Question 22

The typical economic life cycle illustrates how people tend to

A)borrow more when they are younger and save more when they are middle-aged.
B)earn their peak incomes immediately prior to the typical retirement age of 65.
C)adjust their consumption based on changes in their transitory income.
D)All of the above are correct.

Question 23

Libertarians believe that in considering economic fairness,one should primarily consider the

A)outcome of the system.
B)process by which outcomes arise.
C)maximin criterion.
D)maximization total social utility.

Question 24

The goal of libertarianism is to

A)redistribute income based on the assumption of diminishing marginal utility.
B)redistribute income in order to maximize the well-being of the worst-off person in society.
C)punish crimes and enforce voluntary agreements but not to redistribute income.
D)measure happiness and satisfaction.

Question 25

The regular pattern of income variation over a person's life is called

A)the earned income cycle.
B)the substitution effect.
C)the life cycle.
D)the pattern of change.

Question 26

In-kind transfers are

A)obtained only by those who have political connections.
B)provided only by the government.
C)non-monetary items given to the poor.
D)obtained primarily through private charities.

Question 27

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

A)economic mobility.
B)place in the economic life cycle.
C)transitory income.
D)permanent income.

Question 28

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

A)economic efficiency.
B)political philosophy.
C)egalitarian principles.
D)enhanced opportunity.

Question 29

Utilitarianism is

A)a liberal religion that focuses on individual rights.
B)a political philosophy that believes the government should choose policies deemed to be just by an impartial observer.
C)a political philosophy that believes the government should not redistribute income.
D)a political philosophy that believes the government should choose policies to maximize the total utility of society.

Question 30

People have their highest saving rates when they are

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

Question 31

Would the maximin criterion achieve perfect income equality?

A)Yes.There would be no way to reallocate resources to raise the utility of the poor.
B)Yes.The maximin criterion would eliminate poverty.
C)No.It is impossible for complete equality to benefit the worst-off people in society.
D)No.Complete equality would reduce incentives to work,which would reduce total income,which would reduce the incomes of the worst-off people in society.

Question 32

Diminishing marginal utility suggests that

A)more is always preferred to less.
B)the well-being of society is maximized when the distribution of income is equal.
C)the poor are less efficient at spending money than the rich.
D)the poor receive more satisfaction from the last dollar spent than the rich.

Question 33

According to the doctrine of liberalism,principles of justice are the result of

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

Question 34

Liberalism suggests that public policies should aim to

A)maximize the sum of utility of everyone in society.
B)maximize the well-being of the average person in society.
C)maximize the well-being of the worst-off person in society.
D)minimize the difference between the utility of the best-off person in the society and the utility of the worst-off person in society.

Question 35

A utilitarian government has to balance the gains from greater income equality against the losses from distorted work incentives.To maximize total utility,therefore,the government

A)would never tax labor income.
B)must always achieve a fully egalitarian society.
C)enacts policies that only benefit the middle class.
D)stops short of a fully egalitarian society.

Question 36

Suppose that a family saves and borrows to buffer itself against changes in income.These actions relate to which problem in measuring inequality?

A)in-kind transfers
B)negative income tax
C)transitory versus permanent income
D)economic mobility

Question 37

An example of a transitory change in income is the

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

Question 38

The normal life cycle pattern of income

A)contributes to more inequality in the distribution of annual income and to more inequality in living standards.
B)contributes to more inequality in the distribution of annual income,but it does not necessarily contribute to more inequality in living standards.
C)contributes to less inequality in the distribution of annual income and to less inequality in living standards.
D)has no effect on either the distribution of annual income or on living standards.

Question 39

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 40

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

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

Question 41

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 42

Unemployment insurance benefits is a type of

A)in-kind transfer.
B)negative income tax payment.
C)property income.
D)welfare payment.

Question 43

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 44

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

Question 45

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

Question 46

A negative income tax system is designed to

A)provide in-kind benefits to the poor.
B)provide a minimum income to the poor.
C)reduce taxes on the rich when their incomes surpass the maximum income tax bracket.
D)subsidize food consumption in poor families.

Question 47

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

Question 48

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 49

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

Question 50

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 51

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

Question 52

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

Question 53

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 54

A common criticism of welfare programs is that they

A)create self-reliant individuals.
B)encourage strong family values.
C)encourage illegitimate births.
D)have increasing benefits over time,in real terms.

Question 55

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

Question 56

The only qualification to receive government assistance under a negative income tax is

A)pre-school children.
B)to be enrolled in job training.
C)a working head-of-household.
D)a low income.

Question 57

Relative to direct cash payments,in-kind transfers have the advantage of being

A)more politically popular.
B)more efficient.
C)more respectful of the poor.
D)of a higher dollar value than cash payments.

Question 58

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 59

Binding minimum-wage laws

A)are most effective at alleviating poverty when labor demand is highly elastic.
B)force a market imbalance between the supply and demand for labor.
C)increase the efficiency of labor markets.
D)are typically associated with a rise in employment among the poor.

Question 60

Which of the following is an advantage of an in-kind transfer in comparison to a cash payment?

A)In-kind transfers cost less to administer than cash transfers.
B)In-kind transfers restrict the use of the benefit; thus,recipients receive necessities such as food and health care.
C)In-kind transfers are more efficient than cash transfers.
D)In-kind transfers give the recipient more utility than cash transfers.

Question 61

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 62

Briefly describe the three prominent schools of thought in political philosophy.Identify one of the most well-known philosophers in each school.

Question 63

Explain the concept of diminishing marginal utility,and describe the role that it plays in the utilitarian argument for the redistribution of income.

Question 64

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

Question 65

Explain what is meant by "in-kind transfer" programs.Briefly outline the advantages and disadvantages of an in-kind transfer program.

Question 66

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 67

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

Question 68

Explain the relationship between labor earnings and the distribution of income.

Question 69

What is meant by a perfectly equal distribution of income?
Use a graph to depict such a situation.

Question 70

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.