Question 1

Which of the following statements about a negative income tax system are true?
(i) it would eliminate tax progressivity
(ii) it would collect more tax from high-income households
(iii) it would give transfers to low-income households

Accepted Answer

A negative income tax system would provide transfers to low-income households, which is statement (iii). It would also collect more tax from high-income households, as they would not receive the transfers provided to low-income households, which is statement (ii). Statement (i) is false as a negative income tax system would still maintain progressivity by collecting more tax from high-income households. Therefore, the correct answer is (D) (ii) and (iii).

Question 2

Discuss the permanent income hypothesis of income distribution.

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Question 3

What effect has increased workforce participation by women since the 1950's had on inequality? Why is this the case?

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Question 4

Using the graph drawn above, what could occur if:
i) a government that advocates a flat tax rate to the income distribution.
ii) a government advocates a proportional tax where there are more tax brackets.

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Question 5

A tax system that collects revenue from high-income households and gives transfers and tax concessions to low-income households is known as:

Accepted Answer

A tax system that collects revenue from high-income households and gives transfers and tax concessions to low-income households is known as a negative income tax. This system is designed to provide a guaranteed minimum income for those with low or no income while redistributing resources from high-income households. Social security refers to a specific program for retired or disabled individuals, minimum wage laws set a minimum wage amount that employers must pay, and in-kind transfers refer to non-cash assistance such as food stamps or housing vouchers.

Question 6

What are some of the problems associated with measuring inequality?

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Question 7

Suppose the government proposes a negative income tax that calculates taxes owed according to the formula TAXES OWED = (1/4* INCOME) - 15 000.Suppose a family only earns $20 000.How much tax would they pay?

Accepted Answer

Using the formula provided, we can calculate the taxes owed for a family with an income of $20,000:

TAXES OWED = (1/4 x 20,000) - 15,000
TAXES OWED = 5,000 - 15,000
TAXES OWED = -10,000

Since the taxes owed are negative, this means that the family would receive a net income subsidy of $10,000, as option D suggests.

Question 8

Discuss the life cycle hypothesis of income distribution.

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Question 9

If a time limit is not used on recipient benefits, then the effect may be to:
(i) force mothers to work outside the home
(ii) encourage child abuse by absent fathers
(iii) encourage dependency on government programs

Accepted Answer

Not using a time limit on benefits can lead to dependency on government programs, as recipients may not have the incentive to seek employment or other means of support.

Question 10

Present the basic premise of the life cycle theory and discuss why it is used to dispel concerns about an unequal income distribution.

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Question 11

Which of the following statements about anti-poverty programs are generally true?
(i) they generate a very low marginal tax rate on income
(ii) they create disincentives to work
(iii) they discourage saving among recipient groups

Accepted Answer

Anti-poverty programs often create disincentives to work because as income increases, benefits are reduced, effectively increasing the marginal tax rate on income. This can discourage work among recipients. Additionally, these programs can discourage saving because eligibility often depends on having income or assets below certain thresholds.

Question 12

Which of the following formulas is most representative of a negative income tax proposal?

Accepted Answer

A negative income tax proposal typically involves providing a minimum income guarantee through a system of tax credits or cash transfers. Option B is the only formula that incorporates a negative income tax, as the taxes owed decrease as income decreases, until reaching a minimum of $25. Options A, C, and D all involve a proportional tax rate or a fixed amount added to the tax owed, which do not align with the principles of a negative income tax proposal.

Question 13

Many people have been critical of statistics that are used to characterise income inequality on the grounds that as long as the average income of the poor is increasing, their position relative to the rich should not matter.Evaluate this critique.

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Question 14

Explain what is meant by 'in-kind transfer' programs.Briefly outline the pros and cons associated with an in-kind transfer program.

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Question 15

A school voucher system introduced in the United States has lead to:

Accepted Answer

Studies have shown that the introduction of school voucher systems in the United States has led to an increase in the number of low-income households sending their children to private schools. This is because vouchers provide a financial incentive for families to choose private schools over public schools, which can be especially appealing for low-income households who may not be able to afford private school tuition without assistance.

Question 16

Are there problems in using an absolute scale to measure poverty? If so, carefully explain what these problems are.

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Question 17

What would be the qualification(s) to receive government assistance under a negative income tax?
(i) being enrolled in job training
(ii) having preschool children
(iii) having a low income

Accepted Answer

The primary qualification for receiving government assistance under a negative income tax system is having a low income. This system is designed to supplement the income of those below a certain threshold, without necessarily requiring specific conditions such as job training enrollment or having preschool children.

Question 18

Suppose the government proposes a negative income tax that calculates taxes owed according to the formula TAXES OWED = (1/2 * INCOME) - 5 000.A family that earns an income of $30 000 will:

Accepted Answer

For an income of $30,000, the taxes owed would be (1/2 * 30,000) - 5,000 = 15,000 - 5,000 = 10,000. Thus, the family will pay a tax of $10,000.

Question 19

Table 21-1
 $$\begin{array} { c c c c c c } 
\text { Country } & \text { Gattom fifth } & \text { Serond fifth } & \text { Middli firth } & \text { Faurth fifth } & \text { Top fifth } \
\text { Country } X & 3 & 17 & 18 & 22 & 40 \
\text { Courtry } Z & 5 & 18 & 19 & 20 & 38
\end{array}$$ 
Given Table 21-1, which country has a more equally distributed income? Explain your answer.

Accepted Answer

The answer of Table 21-1
 \[\begin{array} { c c c...

Question 20

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

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Quiz 21: Income Inequity and Poverty

Which of the following statements about a negative income tax system are true? (i) it would eliminate tax progressivity (ii) it would collect more tax from high-income households (iii) it would give transfers to low-income households