Deck 21: Income Inequity and Poverty

Question 1

Many policies to help the poor are effective at encouraging the poor to escape from poverty.

Answer 1

False

Question 2

Income inequality is something that occurs in all countries.

Answer 2

True

Question 3

The poverty rate has been rising over time.

Answer 3

True

Question 4

The invisible hand of the marketplace acts to allocate resources efficiently as well as equitably.

Question 5

If cash is transferred to the poor, this is known as an in-kind transfer.

Question 6

A measure of permanent income would be similar to a person's average or 'normal' income.

Question 7

According to utilitarians, the government should continue to redistribute income until everyone in society has exactly the same income.

Question 8

Libertarians conclude that equality of incomes is more important than equality of opportunity.

Question 9

Economic mobility is higher in the USA than in Australia.

Question 10

Some economists argue that because expenditure must be equal to income, the expenditure-based measure of income inequality is no better than the income-based measure of income inequality.

Question 11

Political philosophers agree in their views about the role of government in altering the distribution of income.

Question 12

Poverty is correlated with race, age and family composition.

Question 13

According to utilitarianism, the government should choose policies to maximise the total income of everyone in society.

Question 14

One way to measure the poverty rate is by calculating the percentage of the population whose family income is below the poverty line.

Question 15

Because people can borrow and save to smooth out life-cycle changes in income, their standard of living in any year depends more on lifetime income than on that year's income.

Question 16

Trends over time support the view that the decline of the two-parent family is largely the effect of the welfare system.

Question 17

The distortionary effect of government redistribution programs means that perfect utility maximising outcomes are unattainable.

Question 18

If anti-poverty programs generate high marginal tax rates they may end up discouraging people from working.

Question 19

Rawls would determine the distribution of income as if we were behind a veil of ignorance that prevented us from knowing our own stations in life.

Question 20

The increase in women's workforce participation rate over the last 50 years has been more pronounced for higher income groups.This trend has tended to increase inequality.

Question 21

Evidence suggests that the women's movement has:

A)decreased income inequality across households
B)increased income inequality across households
C)had no effect on the distribution of income across households
D)decreased the importance of traditional measures of income inequality

Question 22

Out of the following countries, the share of total income going to the richest fifth of the population is highest in:

A)Australia
B)Japan
C)USA
D)Brazil

Question 23

Under a negative income tax, it is likely for a person who does not earn income to receive assistance from the government.

Question 24

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 in accounting for annual variation in actual poverty rates
D)overstate the actual poverty rate

Question 25

A person's earnings depend on:

A)how well the economy is doing
B)whether or not the economy is experiencing inflation
C)the supply and demand for that person's labour
D)how much profit that person's employer is able to make

Question 26

In Australia, the share of pre-tax income going to the top fifth of families is roughly ______ times the share of income going to the bottom fifth of families in the income distribution:

A)five
B)ten
C)twenty
D)one-hundred

Question 27

According to the Henderson Commission, the poverty line in Australia was set at:

A)25 per cent of average weekly earnings
B)56.5 per cent of average weekly earnings
C)65.5 per cent of average weekly earnings
D)75 per cent of average weekly earnings

Question 28

Economists refer to the regular pattern of income variation over a person's lifetime as the:

A)life pattern effect
B)cyclical redundancy effect
C)periodic cycle effect
D)life cycle effect

Question 29

With no externalities a competitive market will tend distribute resources:
(i) efficiently
(ii) fairly
(iii) equally

A)(i) only
B)(ii) only
C)(iii) only
D)(i) and (ii)

Question 30

Suppose income was equally distributed across all families, then:

A)60 per cent of the families would receive exactly 60 per cent of the income
B)the relative share of income would decline as the number of families are increased
C)the relative share of income would increase as the number of families are increased
D)all families would more likely be rich than poor

Question 31

In Australia, the share of pre-tax income going to the top fifth of families in the income distribution has been:

A)rising
B)falling
C)roughly steady
D)no data is available

Question 32

Advocates of direct cash payment assistance to the poor argue that although in-kind transfers are generally respectful of individual preferences, such transfers are inefficient.

Question 33

The most commonly used approach to define the poverty line in Australia is to follow the definition of the Henderson Commission, conducted in 1975.This sets the poverty line at:

A)75.5% of average weekly earnings
B)56.5% of average weekly earnings
C)50% of average weekly earnings
D)25% of average weekly earnings

Question 34

Minimum-wage legislation is likely to be least effective in reducing poverty when the demand for labour is inelastic.

Question 35

Income inequality in an economy is traditionally measured by:

A)calculating the bell curve of ability, effort and chance that exists in an economy
B)calculating the percentage of families that fall into broad income classifications
C)referring to standard international distribution tables
D)using something like the normal distribution

Question 36

Out of the following countries, the share of total income going to the poorest fifth of the population is highest in:

A)Australia
B)Japan
C)USA
D)Brazil

Question 37

In Australia, the share of pre-tax income going to the bottom fifth of families in the income distribution has been:

A)rising
B)falling
C)roughly steady
D)no data is available

Question 38

People have their highest saving rates when they are:

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

Question 39

The income distribution in a society is:

A)mostly determined by government taxation policies
B)mostly determined by rental income
C)mostly determined by the geographical location of taxpayers
D)mostly determined by factors that determine wages

Question 40

Over the past few years, growth in average income has:

A)failed to decrease the poverty rate
B)decreased the poverty rate
C)eliminated poverty
D)increased the poverty rate in some years and decreased it in other years

Question 41

Because people can borrow when they are young, the life cycle theory would suggest that a standard of living depends on:

A)aggregate income rather than annual personal income
B)income averaged across seasons rather than across years
C)annual extended family income rather than annual personal income
D)lifetime income rather than annual income

Question 42

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

A)permanent income
B)transitory income
C)lifetime income
D)in-kind transfers

Question 43

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

A)political philosophy
B)economic efficiency
C)altruistic concern for others
D)common sense

Question 44

A permanent income theory suggests that a person's income is composed of predictable life cycle variation and:

A)permanent changes that reflect the seasonal capacity of the economy
B)structural change in the economy
C)aggregate variation resulting from predictable business cycles
D)random and transitory forces in the economy

Question 45

Which of the following is a cause of movement of individuals among income classes?
(i) hard work
(ii) laziness
(iii) chance

A)(i) and (ii)
B)(i) and (iii)
C)(ii) and (iii)
D)(i), (ii) and (iii)

Question 46

When incentives to earn income are distorted by income redistribution programs:

A)total income in an economy can fall
B)total aggregate utility in society can fall
C)losses can exceed potential gains from greater equality of income
D)all of the above can occur

Question 47

The life cycle effect characterises a lifetime income profile in which income:

A)falls during the early years of market activity and peaks at retirement
B)rises and falls in conjunction with the business cycle
C)rises as a worker gains maturity and experience
D)tends to follow a seasonal pattern

Question 48

Which of the following reasons suggests that income-based measures of poverty are not ideal when considering the poverty rates of young people:

A)the economic life cycle of an adult suggests that you will supplement your income when young with borrowing
B)young people tend to have lower standards and expectations than older people and retirees
C)young people are not as geographically mobile as older people and therefore then to be stuck in low paying jobs
D)the incomes of young people is more volatile than average and therefore any one year is not a good measure of income

Question 49

An example of a transitory change in income is:

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

Question 50

According to utilitarians, the ultimate objective of private and public actions is to:

A)ensure an egalitarian distribution of income
B)provide for the betterment of the poor
C)maximise the sum of individual utility
D)enhance the income of the rich

Question 51

Economic mobility refers to the:

A)ability of families to freely relocate to find good jobs
B)movement of resources from one industry to another
C)government's attempt to distribute monetary assistance to areas most in need
D)movement of people among income classes

Question 52

The political philosophy according to which the government should choose policies that maximise the total utility of everyone in society is called:

A)utilitarianism
B)utility maximisation
C)libertarianism
D)rawlsianism

Question 53

Amy currently earns $80 000 a year, while John earns $30 000 a year.Suppose that both of their incomes are subject to diminishing marginal utility.From a utilitarian perspective taking a dollar from Amy and giving it to John will:

A)lower Amy's marginal utility of income
B)increase John's marginal utility of income
C)increase society's total utility
D)do none of the above

Question 54

The concept of utility is fundamental to utilitarianism and describes the:

A)method whereby wealth is stored
B)method by which society chooses to allocate resources
C)optimal distribution of wealth in society
D)level of satisfaction derived from a person's circumstances

Question 55

Which of the following household units are more likely than average to be living in poverty?
(i) couples without children
(ii) single people
(iii) sole one-parents with children

A)(ii) only
B)(iii) only
C)(i) and (iii)
D)(ii) and (iii)

Question 56

Income mobility studies suggest that poverty:

A)is not a long-term problem for most families
B)is a long-term problem for a relatively large number of families
C)cannot be alleviated by government sponsored anti-poverty programs
D)cannot be alleviated by privately sponsored anti-poverty programs

Question 57

A person's permanent income is:

A)the base level of income which they need to support their standard of living
B)the base level of income which their employer pays
C)the guaranteed income provided by the welfare system
D)a person's average income over time

Question 58

Permanent income is distributed between income groups ________:

A)more evenly than current income
B)less evenly than current income
C)about the same as current income
D)higher than current income

Question 59

The utilitarian case for redistributing income is based on the assumption of:

A)a notion of fairness engendered by equality
B)diminishing marginal utility
C)rising marginal utility
D)collective consensus

Question 60

Diminishing marginal utility suggests that:

A)the poor receive more satisfaction than the rich from the last dollar they respectively spend
B)more is always preferred to less
C)the poor are less efficient at spending money than the rich
D)the wellbeing of society is maximised when the distribution of income is equal

Question 61

According to Rawls, principles of justice are the result of:

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

Question 62

In general, which of the following would libertarians conclude is more important than equality?

A)income
B)entrepreneurial compensation
C)capital compensation
D)opportunity

Question 63

Economists who support minimum wage legislation are likely to believe that the:
(i) demand for unskilled labour is relatively inelastic
(ii) demand for unskilled labour is relatively elastic
(iii) supply of unskilled labour is relatively elastic

A)(i) only
B)(i) and (ii)
C)(i) and (iii)
D)(ii) and (iii)

Question 64

A libertarian is likely to argue that:

A)only individual members of society can earn income
B)outcomes always dominate processes
C)society is responsible for ensuring an equal distribution of income
D)government has no role in the economy

Question 65

NARRBEGIN: 21-1
Graph 21-1
Refer to Graph 21-1.Advocates of minimum wage legislation would suggest that an effective minimum wage would be set at a level:

A)below Wo, and employment would rise above Qo
B)above Wo, and employment would fall below Qo
C)above Wo, and employment would rise above Qo
D)below Wo, and employment would fall below Qo

Question 66

Opponents of legislation that proposes to limit the time a family can receive welfare benefits are most likely to argue that time limits are undesirable because:

A)children will become innocent victims if parents are forced off welfare
B)the money saved will be diverted to defence spending
C)long periods on welfare erode work skills
D)there is no evidence to suggest a pattern of welfare dependency

Question 67

Libertarianism identifies a role for government when:

A)an egalitarian distribution of income is inconsistent with market outcomes
B)attorneys are required to facilitate a free market exchange
C)the income distribution is altered by illegal means (e.g.theft)
D)workers lose their jobs as a result of structural changes in the economy

Question 68

What is the political philosophy called in which government should choose policies deemed to be just, as evaluate by an impartial observer behind a 'veil of ignorance':

A)utilitarianism
B)Rawlsianism
C)libertarianism
D)'veil of ignorance' criterion

Question 69

Robert Nozick criticises Rawls' concept of justice by using an example of:

A)the distribution of capital in society
B)a bar-room discussion over justice
C)the grade distribution in an economics class
D)all of the above

Question 70

Evidence suggests that:

A)the best way to deter immigrants is to make legal aliens ineligible for many welfare benefits
B)legislation designed to limit the time a family can be on welfare will never be passed
C)welfare dependency is embraced by over 80 per cent of new welfare recipients
D)the longer a family is on welfare, the harder it is to get off welfare

Question 71

The veil of ignorance refers to:

A)the fact that most people are unaware of their place in society
B)the Rawlsianism argument that justice can never be agreed upon
C)a thought experiment when designing policy where one does not know where he/she will end up in society
D)the claim that government should maximise the wellbeing of the least well off in society

Question 72

Which of the following statements about minimum-wage laws are true?
Minimum wages:
(i) force a market imbalance between the supply and demand for labour
(ii) increase the efficiency of labour markets
(iii) are most effective at alleviating poverty when labour demand is highly elastic

A)(i) only
B)(i) and (ii)
C)(i) and (iii)
D)(ii) and (iii)

Question 73

Which of the following are common criticisms of government programs designed to assist the poor?
(i) they create incentives for people to become 'needy'
(ii) those who receive assistance rarely meet the criterion for eligibility
(iii) they typically account for a majority of annual government expenditures

A)(i) only
B)(i) and (ii)
C)(i) and (iii)
D)(ii) and (iii)

Question 74

For most government programs that are designed to help the poor:

A)being poor is typically sufficient to qualify for assistance
B)being poor, by itself, is typically not sufficient to qualify for assistance
C)the poor may not receive assistance because the poverty line varies so much that it makes them difficult to identify
D)recipients of government assistance are often declared ineligible to receive assistance from private sources

Question 75

The maximin criterion suggests that the focus of social policy would be to:

A)elevate the wellbeing of all workers
B)elevate the wellbeing of those at the bottom of the income distribution
C)ensure an egalitarian distribution of income
D)expropriate the factors of production from the capitalist class

Question 76

NARRBEGIN: 21-1
Graph 21-1
Refer to Graph 21-1.According to the graph, if the government imposes a minimum wage below Wo, it is likely to:

A)have no effect on employment
B)provide more income to the working poor than they collectively received before the minimum wage was set
C)reduce employment to a level below Qo
D)increase employment to a level above Qo

Question 77

According to the maximin criterion, income can be transferred from the rich to the poor as long as it:
(i) enhances the welfare of workers
(ii) promotes an egalitarian distribution of income
(iii) raises the wellbeing of the least fortunate

A)(i) and (ii)
B)(i) and (iii)
C)(ii) and (iii)
D)(iii) only

Question 78

In the parable of the leaky bucket, a fundamental problem with government redistribution programs is identified.As long as the government only has 'leaky buckets' at its disposal:

A)full egalitarian policies will always dominate competing policy options
B)affirmative action programs are doomed to failure
C)equality of economic opportunity is an unattainable goal
D)it should not try to reach complete equality in income

Question 79

Brian earns more than Lynne.A benevolent legislator has proposed taxing Bill in order to supplement Lynne's income.A libertarian would view this proposal as:

A)an inappropriate role for government, since government cannot morally redistribute income that is not its own
B)a way to enhance Lynne's income in a socially responsible way
C)a way to increase social justice
D)validation of the superiority of a libertarian maximin criterion over Rawlsian social justice

Question 80

As a result of the trade-off between income equality and incentives to work, an optimal redistribution policy:

A)must always achieve a full egalitarian society
B)is only consistent with transfers to the middle class
C)always falls short of a full egalitarian society
D)can never be funded through taxes on wage income