Deck 17: The Distribution of Income

Question 1

Supporters of supply-side economics would be most likely to argue __________ government intervention to reduce inequality by focusing on its effects on __________.

A) against; economic growth
B) against; fairness
C) in favor of; politics
D) in favor of; economic growth

Answer 1

A

Question 2

A quintile,sometimes used to measure wealth inequality,represents one-fourth of households.

Answer 2

False
Explanation: A quintile represents one-fifth, or 20 percent, of households.

Question 3

Progressive income tax structures tend to make incomes less equal.

Answer 3

False
Explanation: Progressive income taxes take a larger fraction of a high-income individual's earnings, thereby rendering the after-tax income more equal.

Question 4

An economy where there is a wide gap between the compensation of the top people in certain fields and the merely competent people is called a(n)

A) inequality economy.
B) superstar economy.
C) hyperinflation economy.
D) competitive economy.

Question 5

In a "superstar economy," companies try to find only the very best talent.What effect has this had on labor markets?

A) There is a widening gap in income between people who are competent and people who are the very best.
B) Unemployment tends to increase because one top employee may replace two or three less competent employees.
C) The income gap has narrowed as the "superstars" come up with ideas to produce in ways that boost the pay of lower-income workers.
D) Per capita income has dropped because the "superstars" tend to save, rather than spend, their large salaries.

Question 6

Which of the following is among the arguments for using government intervention to reduce income inequality?

A) Taking money away from individuals who have earned it is unfair and immoral.
B) Government intervention is more effective in promoting creativity and hard work than the hope of higher earnings.
C) Large income differences eventually lead to political strife and will undermine support for a market economy.
D) The income distribution statistics understate inequality because they fail to take economic mobility into account.

Question 7

An increase in the returns to a college education has increased inequality of income.

Question 8

The 80/20 ratio is found by dividing the

A) number of households making less than 80 percent of the poverty line by the number of households making more than 20 times the poverty line.
B) income at the 80th percentile by the income at the 20^th percentile.
C) average income of those below the 80^th percentile by the average income of those above the 80^th percentile (top 20 percent).
D) average income of the top 80 percent of income earners by the average income of the top 20 percent of income earners.

Question 9

Which of the following is among the arguments against using government intervention to reduce income inequality?

A) Governments cannot have much of an impact on income inequality, so there is little use in making the attempt.
B) A wide gap between the rich and the poor tends to promote active participation in the democratic process.
C) Allowing big rewards to go to the most successful performers helps motivate creativity, innovation, and hard work.
D) Large income differences eventually lead to political strife and will undermine support for a market economy.

Question 10

The percentage of U.S.citizens living in poverty is actually higher today than it was for most of the 1970s.

Question 11

The 80/20 ratio of income has been rising over the last three decades.

Question 12

The combined impact of the labor pool effect of globalization for low-skilled workers and the market expansion effect of globalization for high-skilled workers is

A) falling income inequality, since one effect helps those with low incomes and the other effect hurts those with high incomes.
B) stable income inequality, since one effect helps those with low incomes and the other effect helps those with high incomes.
C) rising income inequality, since one effect helps those with high incomes and the other effect hurts those with low incomes.
D) stable income inequality, since one effect hurts those with low incomes and the other effect hurts those with high incomes.

Question 13

Which of the following statements about the poverty line is true?

A) The poverty line is adjusted upward for inflation every year.
B) The percentage of people living below the poverty line has approximately doubled in the last 40 years.
C) The percentage of people living below the poverty line has been cut in half in the last 40 years.
D) The percentage of people over 65 living below the poverty line has approximately doubled in the last 40 years.

Question 14

In the last two decades,women have completely closed the gender earnings gap.

Question 15

Increasing foreign trade has reduced income inequality because the market expansion effect increases the work opportunities and wages of low-skilled workers.

Question 16

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

A) The minimum wage has not had any impact on income inequality.
B) Adjusting for inflation, the real minimum wage has fallen in the last 30 years.
C) Because the minimum wage has been increased many times in the last 30 years, income inequality is now lower than it was in the mid-20^th century.
D) The minimum wage tends to create inflation, which benefits the wealthy more than the poor.

Question 17

Adjusting for inflation,the real minimum wage has fallen over the last 30 years.

Question 18

The percentage of U.S.citizens living below the poverty line is higher today than it was for most of the 1970s.

Question 19

Which of the following is NOT a reason for increasing income inequality?

A) A shift to "superstar" markets, in which firms with larger markets seek the very best talent to work for their companies.
B) Rapid technological improvements, which favor educated workers more than lower-skilled workers.
C) Growth of foreign trade, which helps higher-skilled workers whose talents are in higher demand worldwide.
D) A decline in the dollar value of the minimum wage over several decades.

Question 20

Dividing the number of households making over $80,000 by the number of households making less than $20,000 will produce the 80/20 ratio.

Question 21

Government intervention to reduce income inequality might reduce growth rates because of rent-seeking behavior.This means that

A) landlords might raise rental rates on housing in order to pay the higher taxes that go with government wealth redistribution programs.
B) groups who are not among the neediest might put pressure on government officials to obtain transfers of wealth.
C) people who are not home owners, but reside in rental housing, may become unmotivated and work less, reducing payments to landlords and slowing real estate markets.
D) as a larger fraction of the population falls below the poverty line, or near it, they are pushed out of home ownership and into rental housing. This means they cannot build equity, slowing economic growth overall.

Question 22

People who oppose government intervention to reduce income inequality have sometimes argued that allowing large income gaps can be beneficial because

A) people with large incomes will feel guiltier about their financial advantages and be motivated to give more to the poor.
B) large income gaps increase the incentive to support a market-based economy.
C) the poor will have a shorter life expectancy, leaving more wealth for the successful few.
D) it increases the incentive to work harder to be successful, thereby increasing economic growth.

Question 23

If white workers earn more than black or Hispanic workers primarily because of differences in education,then this means there is no discrimination against blacks or Hispanics.This statement is

A) true, because black and Hispanic workers are paid less because they have less education, not because of discrimination.
B) true, because antidiscrimination laws went into effect a long time ago.
C) false, because it could be that black and Hispanic workers face discrimination or other obstacles to receiving a quality college education.
D) false, because employers are discriminating by choosing not to hire uneducated workers, regardless of their race.

Question 24

The possible increase in rent-seeking behavior is a __________ argument __________ government intervention to reduce inequality.

A) fairness-based; against
B) political; against
C) growth-based; in favor of
D) data-based; against

Question 25

The effective tax rate is the

A) share of income a household pays in taxes.
B) percentage of an additional dollar that a household would pay in taxes.
C) share of income a household pays in taxes, minus any welfare transfers to the household from the government.
D) highest income tax rate minus the lowest income tax rate.

Question 26

The federal income tax in the United States fits the description of which of the following tax structures?

A) regressive.
B) proportional.
C) progressive.
D) it depends on the income of the individual being taxed.

Question 27

The Social Security and Medicare taxes in the United States,which are payroll taxes,fit the description of which of the following tax structures?

A) Regressive.
B) Proportional.
C) Progressive.
D) It depends on the income of the individual being taxed.

Question 28

The bottom quintile of income earners would be those whose income is

A) in the lowest 5 percent.
B) in the lowest 20 percent.
C) in the highest 20 percent.
D) lower than the highest 20 percent of households.

Question 29

Suppose an income tax is imposed that takes $2,000 from someone with an income of $20,000,$2,500 from someone with an income of $30,000,and $4,000 from someone with an income of $80,000.This tax would be classified as

A) proportional.
B) regressive.
C) progressive.
D) a flat tax.

Question 30

People tend to earn higher incomes as they mature and gain experience in the workforce.As a consequence of this income mobility,

A) statistics on income may understate inequality.
B) redistribution from high-income individuals to low-income individuals may encourage innovation and economic growth.
C) statistics on income may overstate inequality.
D) the overall poverty rate may rise as the population ages.

Question 31

Compared to 1981,the year Ronald Reagan took office,the poor now pay a

A) larger fraction of their income in taxes than the top 10 percent of income earners.
B) larger fraction of their income in taxes than the middle 50 percent of income earners.
C) smaller fraction of their income in federal taxes.
D) larger fraction of their income in federal taxes.

Question 32

Suppose an income tax is imposed that takes $1,000 from someone with an income of $20,000; $4,000 from someone with an income of $30,000; and $12,000 from someone with an income of $80,000.This tax would be classified as

A) regressive.
B) proportional.
C) progressive.
D) a flat tax.

Question 33

An income tax is progressive if

A) lower-income households pay a larger share of their income in taxes than higher-income households.
B) most of the tax revenue is used to benefit lower-income households.
C) higher-income households pay a larger share of their income in taxes than lower-income households.
D) most of the tax revenue is used to benefit higher-income households.

Question 34

Discrimination in the workplace results when

A) people who are less productive are paid less than those who are more productive.
B) employers pay people a higher wage if they are better educated.
C) one person is paid less or treated worse on the job than an equally qualified person because of his or her race, gender, or some other characteristics.
D) employers refuse to hire someone who is an illegal immigrant.

Question 35

An income tax is regressive if

A) lower-income households pay a larger share of their income in taxes than higher-income households.
B) most of the tax revenue is used to benefit lower-income households.
C) higher-income households pay a larger share of their income in taxes than lower-income households.
D) most of the tax revenue is used to benefit higher-income households.

Question 36

In the United States,some groups have higher incomes than others.Which of these would be considered discrimination?

A) English professors, who are more likely to be female than engineering professors, are paid less than engineering professors.
B) A male employee is paid more than an equally qualified female employee because the male employee is a manager and the female employee is not.
C) College-educated employees are consistently paid more than employees without a college education.
D) White candidates for a job opening are consistently preferred over equally qualified black candidates for the same position.

Question 37

In the United States,people who earn more than $250,000 a year represent 2 percent of all households and earn

A) 13 percent of total income.
B) 2 percent of total income.
C) Less than 1 percent of total income.
D) 83 percent of total income.

Question 38

A sales tax is usually considered to be a

A) progressive tax.
B) regressive tax.
C) proportional tax.
D) flat tax.

Question 39

Under the current federal income tax laws,a person who has a high income is likely to

A) pay a larger percentage of income in taxes than the average taxpayer.
B) pay a smaller percentage of income in taxes than the average taxpayer.
C) receive a substantial benefit from the earned income tax credit.
D) spend a larger fraction of total income than a low-income taxpayer.

Question 40

The top quintile of income earners would be those whose income is

A) in the highest 5 percent.
B) in the lowest 20 percent.
C) in the highest 20 percent.
D) higher than the lowest 20 percent of households.

Question 41

What is the lowest value the 80/20 ratio can take?

A) -1.
B) 0.
C) 1.
D)100.

Question 42

Your textbook mentions four arguments against government intervention to reduce inequality.List any three of these.

Question 43

Which of the following statements is true?

A) Income distributions have not changed much in the United States in the past 30 years.
B) Progressive income tax structures are one method of making incomes more equal.
C) The poverty line has not been adjusted at all in the past 30 years.
D) Worldwide, no countries are catching up to the United States with respect to GDP per capita.

Question 44

Give a brief explanation of the "superstar economy" as a factor in the widening of income inequality.

Question 45

Which of the following is a theoretically possible value for the 80/20 ratio?

A) -1.
B) 0.
C) 0.5.
D) 1,000.

Question 46

Why might education differences better explain the differences in income between whites and Hispanics than between men and women?

Question 47

If a household earning $50,000 annually pays $10,000 in taxes while a household earning $100,000 annually pays $20,000 in taxes,then the tax system is

A) regressive.
B) progressive.
C) neither regressive nor progressive.
D) redistributive.

Question 48

If a household earning $50,000 annually pays $10,000 in taxes while a household earning $100,000 annually pays $25,000 in taxes,then the tax system is

A) regressive.
B) progressive.
C) neither regressive nor progressive.
D) both regressive and progressive.

Question 49

If a household earning $50,000 annually pays $10,000 in taxes while a household earning $100,000 annually pays $15,000 in taxes,then the tax system is

A) regressive.
B) progressive.
C) reducing income inequality.
D) discriminatory.

Question 50

Among the reasons for high CEO pay are all of the following EXCEPT

A) the people who are capable of doing the work required of a top corporate officer are relatively scarce.
B) paying CEOs with stock in the company will motivate the CEO to do what is in the best interests of the shareholders, and these stock packages might be very large to motivate more.
C) shareholders might benefit from the prestige of investing in a company with a CEO who enjoys a high standard of living.
D) a corporate board might make the CEO job higher-paying in order to entice lower-level corporate officers to put forth maximum effort as they try to achieve the top position.

Question 51

Which of the following statements is FALSE?

A) Worldwide, no countries are catching up to the United States with respect to GDP per capita.
B) Income distributions have become less equal in the United States in the past 30 years.
C) Higher taxes tend to reduce the incentive to work productively and innovate.
D) The poverty rate measures the percentage of people living in households with incomes below the poverty line.

Question 52

Differences in pay between men and women in the United States could be at least partially explained by all of the following EXCEPT

A) occupational choices in which women choose work with greater flexibility but lower pay.
B) gender discrimination.
C) interruptions in women's careers to spend time raising children are more common than for men.
D) large differences in education levels between men and women.

Question 53

Why might people object to a regressive tax structure?

Question 54

How has global trade affected income inequality? Explain briefly.

Question 55

Which of the following numbers,if it were equal to the 80/20 ratio for a particular country,would indicate the most inequality?

A) 0.
B) 0.5.
C) 1.
D)2.