Question 1

The value of a price-distorting subsidy for a three-bedroom apartment is $100 per month.This means that the person choosing to live in an apartment of that size would have to pay an extra $100 per month at the market rent.Then it follows that:

Accepted Answer

A cash subsidy of $100 per month would directly offset the price-distorting subsidy, making the person just as well off as without the subsidy. Additionally, a cash subsidy of less than $100 would still provide some financial relief, albeit not fully offsetting the price distortion, but leaving the person better off than without any subsidy.

Question 2

An EITC program is more likely to encourage working when compared to NIT program because:

Accepted Answer

The Earned Income Tax Credit (EITC) program requires participants to work in order to receive benefits, which incentivizes employment. In contrast, a Negative Income Tax (NIT) program can provide income even if the recipient is not working, which may not encourage work to the same extent.

Question 3

Which of the following is true about the Medicaid program in the United States?

Accepted Answer

Medicaid is a means-tested entitlement program that provides payment for medical services primarily to those with low incomes. However, it is jointly financed by the federal government and state governments, with the federal government matching a percentage of the spending by states. This can place a significant burden on state budgets.

Question 4

The two major programs providing welfare assistance in the form of cash transfers to the poor in the United States are:

Accepted Answer

Temporary Assistance to Needy Families (TANF) and Supplemental Security Income (SSI) are the two major programs providing welfare assistance in the form of cash transfers to the poor in the United States. TANF is a federal assistance program that provides cash assistance to low-income families with children, while SSI provides cash assistance to low-income individuals who are aged, blind, or disabled. Aid to Families with Dependent Children (AFDC) was replaced by TANF in 1996. Emergency Assistance is not a major program providing welfare assistance in the form of cash transfers to the poor in the United States.

Question 5

The Earned Income Tax Credit (EITC):

Accepted Answer

The Earned Income Tax Credit (EITC) is a negative tax that transfers income to poor individuals who have earnings. It can increase the incomes of eligible recipients by as much as 40 percent. The EITC is phased out gradually as the recipient's earnings increase.

Question 6

Which of the following is true about Temporary Assistance to Needy Families (TANF)?

Accepted Answer

TANF provides temporary and limited support for poor families through federal grants to state governments. State governments determine eligibility for its benefits and administer it. It is not an entitlement program administered by the federal government.

Question 7

An income guarantee of $10,000 per year for all families is established with a phase-out rate of benefits of 50 cents per dollar of earnings.Then it follows that:

Accepted Answer

Families with earnings of less than $10,000 per year will receive the full transfer of $10,000. As earnings increase, the benefit will phase-out at a rate of 50 cents per dollar of earnings. Therefore, at an earnings level of $20,000 per year, the benefit will phase out completely, resulting in all families with earnings of less than $20,000 per year receiving transfers. Families with earnings above $20,000 per year will not receive any transfers.

Question 8

The Supplemental Nutrition Assistance (formerly called food stamps):

Accepted Answer

Supplemental Nutrition Assistance provides recipients with additional funds to purchase food, which can free up other income to be spent on nonfood items, thus potentially increasing both food and nonfood purchases.

Question 9

In 1996, Temporary Assistance to Needy Families (TANF) replaced:

Accepted Answer

The answer of In 1996, Temporary Assistance to Needy Families...

Question 10

Suppose a welfare recipient is given a cash grant that increases his monthly income.That grant will never be taken away no matter how much the recipient earns.The grant will result in a(n):

Accepted Answer

The cash grant increases the recipient's income, leading to an income effect that may reduce the incentive to work, as the recipient can maintain a similar standard of living with less work.

Question 11

The most expensive program of assistance to the poor in the United States in recent years has been:

Accepted Answer

Medicaid is the most expensive program of assistance to the poor in the United States, costing $382 billion in 2019. TANF, SNAP, and public housing are all much smaller programs in comparison.

Question 12

What criteria are used in the United States to determine eligibility for transfers to alleviate poverty? Explain why some people who are poor according to official statistics will be ineligible for aid.Explain why taxpayers can have their tax bills reduced, while most poor persons will be made no worse off if in-kind transfers were eliminated and replaced with their cash value to recipients.

Accepted Answer

The answer of What criteria are used in the United...

Question 13

A welfare recipient receives a cash transfer of $100 per week.This grant is not reduced if the recipient earns less than $20 per week.However, after the recipient earns more than $20 per week, the grant is reduced by 66 cents for each dollar of earnings.The cash transfer will be reduced to zero if the recipient earns:

Accepted Answer

To find the answer, we need to set up an equation where x represents the amount the recipient earns per week after the initial $20:

$100 - 0.66x = 0

Solving for x, we get:

x = $151.52

Therefore, the cash transfer will be reduced to zero if the recipient earns $151.52 or more per week. The closest answer choice to this is B, $171.52 per week.

Question 14

Explain how the work incentive for low-wage workers is impaired by transfers based on a means test.Are transfers to the poor reduced on a dollar-for-dollar basis as the poor earn income on their own? What are the income and substitution effects of government assistance to the poor?

Accepted Answer

The answer of Explain how the work incentive for low-wage...

Question 15

Medicaid was enacted by Congress in:

Accepted Answer

Medicaid was enacted by Congress in 1965 as part of the Social Security Act.

Question 16

Under Temporary Assistance to Needy Families (TANF),

Accepted Answer

TANF is a federal program that provides funding to states in the form of a block grant. This means that federal spending is capped and states have flexibility in how they use the funds to provide assistance to eligible families. Each state sets its own eligibility and benefit levels within federal guidelines.

Question 17

If the supply of medical services is perfectly elastic, then the effect of Medicaid is to:

Accepted Answer

If the supply of medical services is perfectly elastic, it means that providers are willing and able to supply as much medical services as needed without any increase in market price. Therefore, Medicaid will not increase the market price of medical services. However, Medicaid recipients may consume medical services beyond the point at which their marginal benefits per year equal the marginal social costs of medical services because they do not bear the full cost of their consumption due to the government subsidy. This leads to overutilization and inefficient allocation of resources, which is represented by the difference between the marginal social cost and marginal private cost of medical services.

Question 18

Why rely on the government to aid the poor rather than private charities?

Accepted Answer

The government can establish uniform standards for eligibility and ensure a more consistent and reliable support system, whereas voluntary donations to private charities might not be sufficient to meet the needs of the poor.

Question 19

Cash transfers are:

Accepted Answer

Cash transfers, such as Temporary Assistance for Needy Families (TANF) and Supplemental Security Income (SSI), are included in the income of recipients when calculating the official poverty rate. However, they are not the dominant method of providing assistance to the poor in the United States, as there are various other programs such as SNAP (food stamps) and Medicaid. Additionally, cash transfers are not solely available to the elderly, as TANF is available to families with children who meet certain requirements.

Question 20

The Earned Income Tax Credit (EITC) is:

Accepted Answer

The Earned Income Tax Credit (EITC) is a subsidy to the poor who have low earnings that increases as they earn more, reaches a maximum, and then is phased out to zero as earnings increase above a certain maximum. This means that those who work and have low earnings receive more of the credit, which provides a strong incentive for them to work and earn more. It is not a transfer to low-income people who are unable to work (A), nor is it a flat grant for all workers below the poverty level (B) or available to all persons whose incomes are below the poverty level, whether they work or not (D).

Quiz 7: Government Subsidies and Income Support for the Poor