Deck 29: The Distribution of Income and Poverty

Question 1

Which of the following statements is false?

A) The Lorenz curve expresses the relationship between cumulative percentage of households and cumulative percentage of income.
B) If there were perfect income equality, the Lorenz curve would be a 45-degree line.
C) The Gini coefficient is a measurement of the degree of inequality in the income distribution.
D) The Gini coefficient is a number between 0 and 100.

Answer 1

D

Question 2

One way to reduce the degree of income inequality is to

A) increase transfer payments going to people with low labor and asset incomes and increase taxes on people with high labor and asset incomes.
B) decrease transfer payments going to people with low labor and asset incomes and decrease taxes on people with high labor and asset incomes.
C) increase transfer payments going to people with low labor and asset incomes by less than taxes are increased on the same people.
D) increase transfer payments going to people with high labor and asset incomes by more than taxes are increased on the same people.
E) a and c

Answer 2

A

Question 3

If the Gini coefficient is zero,there is

A) relative income equality.
B) complete income inequality.
C) complete income equality.
D) relative income inequality.
E) none of the above

Answer 3

C

Question 4

To an economist,wage discrimination exists when

A) individuals of equal marginal revenue products are paid different wage rates.
B) people of different ethnic backgrounds are treated differently by employers.
C) women are paid different wage rates than men.
D) African-Americans are paid different wage rates than whites.
E) b, c, and d

Question 5

The Gini coefficient is a number between

A) 0 and 1.
B) 1 and 10.
C) 0 and 100.
D) -1 and 1.

Question 6

Evidence seems to indicate that the distribution of income prior to adjusting for taxes and in-kind transfer payments is

A) less equal than after adjusting for taxes and in-kind transfer payments.
B) more equal than after adjusting for taxes and in-kind transfer payments.
C) the same as after adjusting for taxes and in-kind transfer payments.
D) impossible to determine.

Question 7

An individual's income equals

A) labor income + wages + asset income.
B) labor income + asset income.
C) labor income + asset income - taxes.
D) labor income - taxes.
E) labor income + asset income + transfer payments - taxes.

Question 8

Which of the following statements is true?

A) If the Gini coefficient is large, then the space between the Lorenz curve and the line of perfect income equality will be small.
B) If the Gini coefficient is 1.00, then the Lorenz curve and the line of perfect income equality coincide.
C) If the government succeeds in decreasing income inequality, then the Gini coefficient will decrease.
D) If the Gini coefficient is 0.50, then one-half of the households earn one-half of the income, and the other half of the households earn the other half.

Question 9

Which of the following is an example of human capital?

A) a computer
B) an electronic calculator
C) education
D) stocks and bonds
E) all of the above

Question 10

Which of the following statements is false?

A) If people were more alike in terms of their marketable innate abilities and attributes, there would be less income inequality.
B) Some degree of income inequality can be attributed to the fact that some people consume less leisure than others.
C) Schooling is referred to as human capital.
D) Education differences are generally not reflected in income differences.

Question 11

One measure of the severity of poverty is the ratio of income to poverty which is calculated by

A) dividing a family's poverty income threshold by that family's income.
B) dividing a family's transfer payments received by that family's income.
C) dividing a family's income by the family's poverty income threshold.
D) dividing a family's income by that family's transfer payments received.
E) none of the above

Question 12

The Lorenz curve is a graphical representation of

A) the income to poverty ratio.
B) economic growth.
C) the percentage of total income left to spend after taxes.
D) the distribution of income.

Question 13

Anytime the ratio of income to poverty for a family is

A) greater than 1.00, the family is not considered to be living in poverty.
B) greater than zero, the family is not considered to be living in poverty.
C) between 1.00 and 1.25, the family is considered to be "near poor."
D) a and b
E) a and c

Question 14

Which of the following statements is true?

A) The people that make up the top 5 percent of all income earners are all millionaires.
B) In 2009, the lowest 20 percent of all income earners earned less than 5 percent of the total money income.
C) The income distribution in the United States is completely equal.
D) Between 1967 and 2009, the income distribution in the United States became more equal.

Question 15

In 2012 a woman won a $100 million lottery.Her income is (most likely)largely due to her

A) hard work.
B) education.
C) highly marketable innate abilities.
D) good luck.
E) none of the above

Question 16

"In-kind" transfer payments are made

A) when the recipient performs some service in return for the payment.
B) in the form of goods and services.
C) in the form of lower taxes or tax breaks.
D) in the form of cash.

Question 17

Some economists contend that in-kind transfers should be included in the calculation of an individual's income because

A) in-kind items do not cost anything.
B) simple money income is not a complete measure of one's command over goods and services.
C) in-kind items make a person "better off" than the person's actual money income would lead us to believe.
D) b and c

Question 18

As a determinant of a person's income,luck is more important in the __________ run,as continuous reoccurrences of one kind of luck are __________.

A) short; likely
B) short; unlikely
C) long; likely
D) long; unlikely

Question 19

The larger the Gini coefficient,the

A) greater the degree of income inequality.
B) greater the degree of income equality.
C) smaller the population.
D) larger the population.
E) b and d

Question 20

If the Gini coefficient is 1,there is

A) complete income inequality.
B) complete income equality.
C) relative income equality.
D) relative income inequality.

Question 21

Exhibit 29-1

Refer to Exhibit 29-1. If the Gini coefficient is some number greater than 0,but less than 1,then the Lorenz curve could be

A) line AB.
B) line OB.
C) the curve connecting point O to point B.
D) the horizontal axis from 0 to A and the line AB.
E) point B.

Question 22

In-kind transfer payments are transfer payments that are paid in

A) cash.
B) a specific good or service.
C) stocks and bonds.
D) a and b
E) all of the above

Question 23

A person is more likely to be poor if he or she is

A) African-American or Hispanic rather than white.
B) a member of a male-headed family rather than a female-headed family.
C) old rather than young.
D) all of the above

Question 24

If we define poverty as income below $10,000 per year,we have set a(n)__________ definition of poverty.

A) relative
B) constrained
C) absolute
D) denominated

Question 25

Exhibit 29-1

Refer to Exhibit 29-1.If the Gini coefficient equals 0,then the Lorenz curve is

A) point A.
B) line OB.
C) the horizontal axis from 0 to A.
D) line AB.
E) the horizontal axis from 0 to A and the line AB.

Question 26

Which of the following is a definition of poverty in absolute terms?

A) A family is in poverty if it receives less than $10,000 a year in money income.
B) A family is in poverty if it receives an income that places it in the lowest 5 percent of family income recipients.
C) A family is in poverty if the majority of families receive more income than it receives.
D) a, b, and c

Question 27

If we define poverty using absolute terms,it follows that

A) people are poor if they earn less than a specified income level.
B) there can be situations in which no one would be considered poor.
C) poverty exists if the Gini coefficient is small.
D) b and c
E) a and b

Question 28

Transfer payments are payments that are

A) made in return for goods and services currently supplied.
B) made in return for goods and services to be supplied in the future.
C) made in return for goods and services that were supplied in the past.
D) not made in return for goods and services currently supplied.

Question 29

The existence of which of the following leads to an overestimate of the number of persons in poverty?

A) unreported income
B) in-kind benefits received by the poor
C) uncounted homeless persons
D) a and b
E) a, b, and c

Question 30

Differences in income result from differences in

A) innate abilities and attributes.
B) education and other training.
C) attitudes toward risk.
D) a and b
E) a, b, and c

Question 31

Which of the following statements is true?

A) Some degree of income inequality is due to the fact that individuals are innately different and make different choices.
B) No income inequality is due to good or bad luck.
C) People who agree on the factors that cause income inequality may not agree on the importance of the different factors.
D) a and c
E) a, b, and c

Question 32

Exhibit 29-1

Refer to Exhibit 29-1.If the Gini coefficient equals 1,then the Lorenz curve is

A) point B.
B) line OB.
C) the horizontal axis from 0 to A.
D) line AB.
E) the horizontal axis from 0 to A and the line AB.

Question 33

In 2009,the top 20 percent of households in the United States earned collectively approximately what percent of the total income of all households?

A) 20 percent
B) 30 percent
C) 40 percent
D) 50 percent
E) 60 percent

Question 34

Which of the following statements is false?

A) There are more poor white persons than there are poor African-American persons.
B) People are more likely to be poor when they are young than at any other time.
C) Families headed by females are more likely to be poor than families headed by males.
D) The uneducated and poorly educated are more likely to be poor than the educated.
E) none of the above

Question 35

The Lorenz curve of perfect income equality is a

A) vertical line.
B) horizontal line.
C) 45-degree line.
D) downward-sloping line.
E) line with a slope of negative 1.

Question 36

Which of the following was not given as a reason for income differences in the text?

A) luck
B) low minimum wage
C) wage discrimination
D) risk taking

Question 37

In relative terms,poverty will always exist

A) regardless of how high the average absolute standard of living is.
B) given an unequal income distribution.
C) unless there is absolute income equality.
D) b and c
E) all of the above

Question 38

Which of the following is not an example of in-kind transfer payments?

A) food stamps
B) subsidized public housing
C) subsidized public education
D) Aid to Families with Dependent Children (AFDC)
E) Medicaid

Question 39

The Gini coefficient would be

A) 1 if there were perfect income equality.
B) zero if there were perfect income equality.
C) -l if there were complete income inequality.
D) zero if there were complete income inequality.
E) a and d

Question 40

The Gini coefficient is computed by dividing the

A) area between the line of perfect income equality and the actual Lorenz curve by the area below the Lorenz curve.
B) area below the Lorenz curve by the total area below the line of perfect equality.
C) area between the line of perfect income equality and the actual Lorenz curve by the total triangular area below the line of perfect income equality.
D) either a or b
E) any of the above

Question 41

Suppose 60 percent of all households earn 60 percent of all income.Based on this information it follows that

A) 20 percent of all households earn 20 percent of all income.
B) 40 percent of all households earn 40 percent of all income.
C) the Lorenz curve and the line of perfect income equality are one and the same.
D) a, b, and c
E) none of the above

Question 42

The Gini coefficients for countries A and B are 0.25 and 0.30,respectively.We can definitely conclude that

A) the lowest 20 percent family income groups in A and B receive 25 percent and 30 percent of total income, respectively.
B) the lowest 50 percent family income groups in A and B receive 25 percent and 30 percent of total income, respectively.
C) the lowest 20 percent family income group receives a greater share of total income in country A than in country B.
D) the lowest 20 percent family income group receives a greater share of total income in country B than in country A.
E) none of the above

Question 43

In 2009,the lowest 20 percent of households in the United States earned approximately what percent of the total income of all households?

A) 1%
B) 3%
C) 8%
D) 16%
E) 20%

Question 44

A person's labor income is equal to the __________ times __________.The return on savings that a person receives is referred to as __________.

A) wage rate a person earns; number of hours the person works; transfer income
B) wage rate a person earns; number of hours the person works; asset income
C) price divided by number of units sold; number of hours worked; liabilities income
D) wage rate a person earns; number of hours the person works; labor income
E) annual salary a person earns; number of days a year the person works; asset income

Question 45

The Gini coefficient measures the degree of

A) racial discrimination.
B) age discrimination.
C) income inequality.
D) sex discrimination.
E) wage discrimination.

Question 46

When the actual Lorenz curve is a 45-degree line,there is

A) perfect income equality.
B) perfect income inequality.
C) a more equal distribution of income than before.
D) a less equal distribution of income than before.
E) the same distribution of income as before.

Question 47

The closer the Gini coefficient is to 1,the

A) greater the degree of income inequality.
B) less the degree of income inequality.
C) greater the degree of discrimination.
D) less the degree of discrimination.

Question 48

If the Gini coefficient is one (1),this means that there is

A) perfect income equality.
B) some income inequality.
C) complete income inequality.
D) no area between the line of perfect income equality and the actual Lorenz curve.
E) c and d

Question 49

Economists often assert that a person who receives an in-kind transfer payment (from government)has a higher income as a result.But an in-kind transfer is not money income,so what are economists thinking?

A) They are thinking that an additional in-kind benefit, like more money income, makes a person better off and thus they are equating being better off (in the sense of having more goods and services) with a higher income.
B) They are thinking that persons who receive in-kind benefits end up selling them, receiving money in exchange.
C) They are thinking that the individuals who receive the in-kind benefits equate more in-kind benefits with more money income.
D) They are thinking that individuals who receive in-kind benefits would prefer to receive them over receiving additional money income, so that in-kind benefits are worth at least their monetary value.
E) none of the above

Question 50

A Gini coefficient of 1 means there is

A) perfect income equality.
B) perfect income inequality.
C) a more equal distribution of income than before.
D) a less equal distribution of income than before.
E) the same distribution of income as before.

Question 51

The closer the Gini coefficient is to zero,the

A) greater the degree of income inequality.
B) less the degree of income inequality.
C) greater the degree of discrimination.
D) less the degree of discrimination.

Question 52

When the actual Lorenz curve is as far away from the 45-degree line as possible,there is

A) perfect income equality.
B) perfect income inequality.
C) a more equal distribution of income than before.
D) a less equal distribution of income than before.

Question 53

The Lorenz curve is a graph of the __________ of the population.

A) age distribution
B) income distribution
C) wealth distribution
D) racial composition

Question 54

In order to make the income distribution more equal,the federal government could

A) increase taxes on the rich and increase transfer payments to the poor.
B) decrease transfer payments to the rich.
C) increase taxes on the poor.
D) increase taxes on the rich and increase transfer payments to the middle class.
E) a and d

Question 55

A winner-take-all market

A) is one in which the top producer or performer in the market earns significantly more than others in the same market.
B) applies to the sports market and the entertainment market, exclusively.
C) the top producer earns all of the profits in that market.
D) a and b
E) b and c

Question 56

If a person's asset income rises and his or her transfer payments (received)decline,it follows that that person's

A) overall income rises.
B) overall income falls.
C) overall income stays constant.
D) labor income will rise as his or her asset income rises.
E) none of the above

Question 57

If the Gini coefficient is equal to 2,we can conclude that

A) 2 percent of the households receive 100 percent of total income.
B) 2 percent of the households receive 50 percent of total income.
C) 50 percent of the households receive only 2 percent of total income.
D) b and c
E) None of the above, because the Gini coefficient cannot exceed 1.

Question 58

If the Gini coefficient is zero (0),this means that

A) there is complete income inequality.
B) there is some income inequality.
C) there is perfect income equality.
D) the area between the line of perfect income equality and the actual Lorenz curve is very large.
E) a and d

Question 59

Suppose the data show that each year between 1962 and 2012,10 percent of all income earners (in the United States)earned little enough to be considered poor.It follows that

A) the person who was part of the 10 percent poor in 1962 was also part of the 10 percent poor in 2012.
B) the person who was part of the 10 percent poor in 1962 may not be part of the 10 percent poor in 2012.
C) there is no upward income mobility in the United States.
D) the income distribution in the United States (during this period of time) was unequal.
E) b and d

Question 60

A Gini coefficient of zero means there is

A) perfect income equality.
B) perfect income inequality.
C) a more equal distribution of income than before.
D) a less equal distribution of income than before.
E) the same distribution of income as before.

Question 61

Exhibit 29-2

Refer to Exhibit 29-2. This graph depicts the Lorenz curve for two countries,country 1 (Lorenz curve 1)and country 2 (Lorenz curve 2). The Gini coefficient associated with Lorenz curve 1 appears to be ____________ than the Gini coefficient associated with Lorenz curve 2. This information indicates that the income distribution is ______________ equal in country 2 than in country 1.

A) lower; less
B) higher; less
C) lower; more
D) higher; more

Question 62

Exhibit 29-2

Refer to Exhibit 29-2. This graph depicts the Lorenz curve for two countries,country 1 (Lorenz curve 1)and country 2 (Lorenz curve 2). Although the Gini coefficient is __________ in country 1 than in country 2,the bottom quintile in ____________ receives a larger share of income compared to the bottom quintile in _______________.

A) lower; country 1; country 2
B) lower; country 2; country 1
C) higher; country 1; country 2
D) higher; country 2; country 1

Question 63

The economist who said,"I am distressed by the sight of poverty.I am benefited by its alleviation; but I am benefited equally whether I or someone else pays for its alleviation; the benefits of other people's charity therefore partly accrues to me" was

A) John Kenneth Galbraith.
B) John Rawls.
C) Milton Friedman.
D) Adam Smith.
E) David Ricardo.

Question 64

A public good is

A) a good that government provides to the public, such as roads, education, etc.
B) a good that is consumed in public, such as at a restaurant or ball park.
C) a good that if consumed by one person can be consumed by other persons to the same degree and the consumption of which cannot be denied to anyone.
D) a good that benefits the public more than it costs the public.
E) none of the above

Question 65

Based on the income data presented for the United States (in your text),it follows that the Gini coefficient for the United States is

A) less than 1 and greater than 0.
B) definitely less than 1, but it may be 0.
C) definitely greater than 0, but it may be 1.
D) definitely 1.
E) approximately 2.3.

Question 66

In the United States,there are _______________ people in the average household in the top quintile (of total money income)than in the bottom quintile. This situation tends to skew the Census's measure of the income distribution so that the income distribution appears to be __________________ than it would be if a correction were made so that each quintile actually contained 20% of the population.

A) more; less equal
B) less; less equal
C) more; more equal
D) less; more equal

Question 67

Wage discrimination exists when individuals of __________ are paid different wage rates.

A) varying ability and productivity
B) different ethnic origins
C) different religions
D) equal ability and productivity
E) b, c, and d

Question 68

Compared to those people who prefer to play it safe,individuals who are more comfortable taking risks are more likely to reach the top of the income distribution,or to hit the bottom,ceteris paribus.

Question 69

Smith and Jones are different when it comes to taking risk.Smith will assume much more risk than Jones.It follows that

A) Smith will earn more income than Jones.
B) Jones will earn more income than Smith.
C) Smith has a higher probability than Jones of earning a higher income.
D) Smith has a higher probability than Jones of earning a lower income.
E) c and d

Question 70

Smith and Jones work at very similar jobs,but Smith earns almost 30 percent more a day than Jones.This is a case of __________ discrimination.

A) gender
B) religious
C) wage
D) ethnic
E) There is not enough information to answer the question.

Question 71

The social insurance justification for government welfare assistance holds that

A) individuals want to provide welfare assistance to the needy because this is the right thing to do.
B) individuals currently not receiving welfare think they might one day need welfare assistance and thus they support welfare programs today.
C) it is society's duty or obligation to provide health insurance to those who cannot afford it.
D) a person benefits from the alleviation of poverty even if he doesn't contribute to alleviating poverty.
E) none of the above

Question 72

Based on the income data presented for the U.S.(in your text)the Gini coefficient was around 0.45 in 2007,which is higher than it was in 1947.

Question 73

During the last year that Michael Jordan played basketball with the Chicago Bulls he earned ___________________ times the salary of the lowest paid player on the team.

A) 12
B) 121
C) 1,210
D) 12,121

Question 74

In country A the income shares (in percent)received by the lowest fifth of income groups to the highest fifth of income groups is,respectively,10,15,20,25,and 30.In country B the income shares (in percent)received by the lowest fifth of income groups to the highest fifth of income groups is,respectively,5,12,20,25 and 38.It follows that the

A) income distribution is more equal in country B than A.
B) income distribution is less unequal in country B than A.
C) Lorenz curve in country B is nearly the same as the line of perfect income equality in country A, but not in country B.
D) income distribution is less equal in country B than A.
E) a and b

Question 75

A factor that does not contribute to income inequality includes

A) innate abilities and attributes.
B) the amount of work a person chooses to do.
C) education and training.
D) luck.
E) none of the above; that is, all factors contribute to income inequality.

Question 76

The Lorenz curve and the line of perfect income equality will be one and the same in an economy if 20% of all households receive 20% of all income.

Question 77

Consider the area between the line of perfect income equality and the Lorenz curve.In country A this area is larger than in country B.It follows that

A) the bottom 20 percent income group receives a lower percentage of total income in country A than in country B.
B) the bottom 20 percent income group receives a lower percentage of total income in country B than in county A.
C) the top 20 percent income group receives a higher percentage of total income in country B than in country A.
D) the top 20 percent income group receives a higher percentage of total income in country A than in country B.
E) none of the above

Question 78

Country A has a Gini coefficient of 0.5 and country B has a Gini coefficient of 0.7.It follows that

A) there is greater income inequality in country A than B.
B) there is greater income inequality in country B than A.
C) it is possible for the Lorenz curves in each country to be the same.
D) it is possible for the adjusted Gini coefficients to the same in each country.
E) none of the above

Question 79

When income distribution data for the United States is adjusted for taxes and in-kind transfer payments the distribution is more equal than before such an adjustment is made.

Question 80

According to economists Frank and Cook,one reason there are more winner-take-all markets today than in the past is because

A) government has limited the choices that people can make when they are choosing what to buy.
B) changes in technology, communications, and transportation costs have made it possible for consumers to buy from a small handful of "the best" suppliers in the world.
C) changes in technology have lowered prices.
D) of the importance that today is placed on ideas instead of things.
E) a and b