Deck 11: Income Inequality and Poverty

Question 1

Using the data in the above table,what percentage of households made $75,000-$99,999?

A) 11 percent
B) 13 percent
C) 16 percent
D) 85 percent

Answer 1

B

Question 2

Based on 2009 data on the distribution of personal income:

A) 7 percent of all households receive $100,000 and above.
B) 17 percent of all households receive $100,000 and above.
C) 20 percent of all households receive $100,000 and above.
D) 26 percent of all households receive $100,000 and above.

Answer 2

C

Question 3

Using the data in the above table,what percentage of households made less than $15,000?

A) 5 percent
B) 6 percent
C) 11 percent
D) 23 percent

Answer 3

C

Question 4

The average household income in the United States in 2009 was:

A) $27,876.
B) $34,231.
C) $52,025.
D) $67,570.

Question 5

The percentage of total before-tax income received by the lowest 20 percent of households in 2009 was about:

A) 1.8 percent.
B) 3.4 percent.
C) 8.7 percent.
D) 22.9 percent.

Question 6

Using the data in the above table,what percentage should be reported in blank D of column 3?

A) 21
B) 35
C) 85
D) 94
The blank in column 3 is found by adding the value in column 2 to the previous value in column 3.Thus,D is 72 + 13 = 85.

Question 7

The Lorenz curve is a graph that shows the:

A) distribution of wealth.
B) degree of income inequality.
C) effect of discrimination on incomes.
D) trade-off between equality and efficiency.

Question 8

Using the data in the above table,what percentage should be reported in blank A of column 2?

A) 5
B) 6
C) 12
D) 17
The blank in column 2 is found by subtracting the percentage in column 3 for the entry $25,000 - $34,999 from the previous percentage.Thus,A is 35 - 23 = 12.

Question 9

A Lorenz curve shows:

A) the tax and transfer trade-off.
B) how many households are living in poverty.
C) perfect income equality.
D) the distribution of income.

Question 10

Using the data in the above table,what percentage of households made $100,000 or more?

A) 13 percent
B) 15 percent
C) 72 percent
D) 85 percent

Question 11

Using the data in the above table,what percentage should be reported in blank C of column 3?

A) 6
B) 11
C) 35
D) 51
The blank in column 3 is found by adding the value in column 2 to the previous value in column 3.Thus,C is 35 + 16 = 51.

Question 12

In 2009,about what percentage of households had personal income of $50,000-$74,999?

A) 2 percent
B) 5 percent
C) 11 percent
D) 18 percent

Question 13

Using the data in the above table,what percentage of households made less than $35,000?

A) 5 percent
B) 12 percent
C) 35 percent
D) 51 percent

Question 14

The greater the degree of inequality in the size distribution of income,the more bowed will be the Lorenz curve toward the:

A) upper left-hand corner.
B) upper right-hand corner.
C) lower right-hand corner.
D) lower left-hand corner.

Question 15

The percentage of total before-tax income received by the highest 20 percent of households in 2009 was about:

A) 21 percent.
B) 50 percent.
C) 61 percent.
D) 82 percent.

Question 16

A progressive income tax would cause the after-tax Lorenz curve,compared with the before-tax Lorenz curve,to be:

A) more bowed toward the southeast.
B) less bowed to the southeast.
C) a vertical line.
D) a horizontal line.

Question 17

The difference between the 45-degree line and the Lorenz curve shows the:

A) inflationary gap.
B) recessionary gap.
C) number of households that are classified as being poor.
D) degree of income inequality.

Question 18

Using the data in the above table,what percentage should be reported in blank B of column 2?

A) 6
B) 16
C) 21
D) 25
The first step is to identify "C." C is the cumulative percentage of the previous class shown in column 3.It is found by adding the percentage in the relevant class (column 2)to the prior cumulative percentage (column 3).C = 35 + 16 = 51.The blank in column 2 is then found by subtracting the cumulative percentage in column 3 for the entry $50,000-$74,999 from that in the previous class.B = 72 - 51 = 21.

Question 19

A Lorenz curve showing perfect equality in the distribution of income:

A) coincides with the horizontal axis.
B) coincides with the vertical axis.
C) is a straight line with a 45-degree angle.
D) is a curve bowed to the southwest.

Question 20

In 2009,about what percentage of households had personal income of $100,000 or more?

A) 3 percent
B) 8 percent
C) 16 percent
D) 20 percent

Question 21

Refer to the above graph.If a curve shifted from (d)to (b),then the Gini ratio would:

A) increase.
B) decrease.
C) remain constant.
D) become negative.

Question 22

Refer to the above graph,which shows four different Lorenz curves (I,II,III,and IV).Which change would indicate that there has been an increase in income equality? A movement from point:

A) c to a.
B) a to d.
C) d to a.
D) b to e.

Question 23

Refer to the above graph.The Gini ratio would be 0 for which curve?

A) a
B) b
C) c
D) d

Question 24

Refer to the above graph,which shows four different Lorenz curves (I,II,III,and IV).The movement from point b to point e in the graph would indicate that:

A) 80 percent of households now receive 40 percent of income instead of 60 percent of households.
B) 80 percent of income goes to 40 percent of households instead of 60 percent of households.
C) 40 percent of income goes to 60 percent of households instead of 80 percent of households.
D) 60 percent of households now receive 20 percent instead of 60 percent of income.

Question 25

Refer to the above graph,which shows four different Lorenz curves (I,II,III,and IV).The greatest increase in income inequality would occur with a shift in a Lorenz curve from:

A) II to III.
B) II to IV.
C) IV to III.
D) IV to I.

Question 26

The Gini ratio is determined by:

A) adding the area between the Lorenz curve and the diagonal to the total area below the diagonal.
B) dividing the area between the Lorenz curve and the diagonal by the total area below the diagonal.
C) multiplying the area between the Lorenz curve and the diagonal by the total area below the diagonal.
D) subtracting the area between the Lorenz curve and the diagonal from the total area below the diagonal.

Question 27

Complete income equality using the Gini ratio would be reflected by a value of:

A) 3.
B) 2.
C) 1.
D) 0.

Question 28

Refer to the above graph,which shows four different Lorenz curves (I,II,III,and IV).What point indicates that 60 percent of the households receive only 40 percent of the income?

A) a
B) b
C) c
D) d

Question 29

Refer to the above graph.If a curve shifted from (b)to (d),then the Gini ratio would:

A) increase.
B) decrease.
C) remain constant.
D) become negative.

Question 30

Complete income inequality using the Gini ratio would be reflected by a value of:

A) 2.
B) 3.
C) 0.
D) 1.

Question 31

Refer to the above graph.The Gini ratio would be greatest for which curve?

A) a
B) b
C) c
D) d

Question 32

As the area between the Lorenz curve and diagonal gets smaller,the Gini ratio:

A) rises to reflect greater equality.
B) rises to reflect greater inequality.
C) falls to reflect greater inequality.
D) falls to reflect greater equality.

Question 33

The Lorenz curve is helpful in visualizing the:

A) trade-off between unemployment and inflation.
B) relationship between the prices received and paid by farmers.
C) degree of inequality in the distribution of income.
D) relationship between education and income.

Question 34

The diagonal line in a Lorenz curve represents perfect:

A) inequality in the distribution of personal income.
B) equality in the distribution of personal income.
C) inequality in factor shares of personal income.
D) equality in factor shares of personal income.

Question 35

The degree of inequality in the distribution of income in an economy is depicted in a:

A) Lorenz curve.
B) Phillips curve.
C) Laffer curve.
D) supply curve.

Question 36

Which of the following Gini ratios would indicate the least amount of income inequality?

A) 0.20
B) 0.40
C) 0.60
D) 0.80

Question 37

Refer to the above graph.A nation that has an income distribution of perfect equality would be represented by the above curve:

A) a.
B) b.
C) c.
D) d.

Question 38

Refer to the above graph.Venezuela has a very small number of extremely wealthy households and an extremely large number of very poor households.If the United States is represented by Lorenz curve (C)above,which curve would represent Venezuela?

A) a
B) b
C) c
D) d

Question 39

Refer to the above graph.If the United States is represented by Lorenz curve (C.above,which curve would represent most other industrially advanced nations?

A) a
B) b
C) c
D) d

Question 40

As the area between the Lorenz curve and diagonal gets larger,the Gini ratio:

A) rises to reflect greater equality.
B) rises to reflect greater inequality.
C) falls to reflect greater inequality.
D) falls to reflect greater equality.

Question 41

Which would be a significant cause of income inequality in the United States?

A) Housing
B) Discrimination
C) In-kind transfers
D) Social Security

Question 42

Differences in "job preferences" and "job risks":

A) illustrate the trade-off between equality and efficiency.
B) can be used to broaden the concept of income.
C) result from government transfer programs.
D) are a cause of income inequality.

Question 43

Earnings from wealth:

A) contribute to income inequality.
B) are the major source of family income.
C) are becoming more equal in the society.
D) are primarily the result of advanced education.

Question 44

Suppose that Jennifer earns $10,000 in year 1 and $40,000 in year 2,while Shawna earns $40,000 in year 1 and only $10,000 in year 2.Is there income inequality for the two individuals?

A) The yearly data and the data over the two years indicate equality.
B) The yearly data and the data over the two years indicate inequality.
C) The yearly data indicate equality,but the data over the two years indicate inequality.
D) The yearly data indicate inequality,but the data over the two years indicate equality.

Question 45

Taxes and transfer payments:

A) reduce the degree of income inequality.
B) increase the degree of income inequality.
C) have no effect upon the location of the Lorenz curve.
D) make the Lorenz curve a straight 45-degree line.

Question 46

A government payment in the form of goods and services rather than money is a(n):

A) earned income tax credit.
B) benefit reduction.
C) noncash transfer.
D) work incentive.

Question 47

Two major criticisms of the Bureau of Census data as a portrayal of the degree of income inequality are that the income concept employed is too:

A) broad and the income accounting period is too short.
B) narrow and the income accounting period is too long.
C) narrow and the income accounting period is too short.
D) broad and the income accounting period is too long.

Question 48

Refer to the above table.It shows that:

A) income inequality increased after taxes and transfers are taken into account.
B) income inequality decreased after taxes and transfers are taken into account.
C) income received by the highest 20 percent of households increased after taxes and transfers.
D) income received by the lowest 20 percent of households decreased after taxes and transfers.

Question 49

Refer to the above table.The decline in percentage of income received from before taxes and transfers to after taxes and transfers is greatest for the:

A) second 20 percent of households.
B) third 20 percent of households.
C) fourth 20 percent of households.
D) highest 20 percent of households.

Question 50

Refer to the above table.Before taxes and transfers:

A) the highest 20 percent of households received 46.0 percent of income.
B) the highest 20 percent of households received 54.8 percent of income.
C) the lowest 20 percent of households received 70 percent of income.
D) the lowest 20 percent of households received 4.9 percent of income.

Question 51

When the distribution of income is adjusted for noncash transfers,the income distribution shows:

A) perfect equality.
B) greater equality.
C) greater inequality.
D) little,if any,change.

Question 52

Suppose that Jane earns $10,000 in year 1 and $100,000 in year 2,while Jim earns $100,000 in year 1 and $10,000 in year 2.Is there income equality for the two individuals?

A) The annual data indicate equality,but the two-year data indicate inequality.
B) The annual data indicate inequality,but the two-year data indicate equality.
C) Both the annual and the two-year data indicate equality.
D) Both the annual and the two-year data indicate inequality.

Question 53

A cause of the unequal distribution of income in the United States is:

A) differences in preferences and risks.
B) differences in noncash transfers.
C) high expenditures for social insurance.
D) a low benefit-reduction rate for income.

Question 54

The degree of inequality in the distribution of annual income is:

A) understated because it does not take into account wages and salaries.
B) overstated because it does not take into account how income changes over time.
C) understated because it does not take into account how income changes over time.
D) overstated because it does not take into account wages and salaries.

Question 55

Refer to the above table.The rise in percentage of income received from before taxes and transfers to after taxes and transfers is greatest for the:

A) lowest 20 percent of households.
B) third 20 percent of households.
C) fourth 20 percent of households.
D) highest 20 percent of households.

Question 56

When taxes and transfer payments are taken into account,the distribution of income in the United States:

A) is unchanged.
B) is less equally distributed.
C) is more equally distributed.
D) becomes more beneficial for the wealthy.

Question 57

One of the major causes of income inequality is the difference in:

A) unemployment benefits.
B) transportation.
C) education.
D) housing.

Question 58

Which contributes more to the reduction of income inequality?

A) Taxes
B) Wealth
C) Transfer payments
D) Earned income tax credits

Question 59

The empirical data indicate that the tax system and the transfer programs of the government:

A) increase the degree of inequality in the distribution of income.
B) make no change in the degree of inequality in the distribution of income.
C) reduce the degree of inequality in the distribution of income.
D) affect the distribution of wealth,not income.

Question 60

Which is an example of a noncash transfer?

A) An inheritance of $1 million
B) Payments for labor services rendered
C) Postage stamps
D) Medicare

Question 61

A flow of wages and salary earnings,along with rent,interest,and profits,is:

A) wealth.
B) income.
C) transfers.
D) utility.

Question 62

Which would be considered part of wealth?

A) Wages and salaries
B) Rental payments
C) Profits from a corporation
D) Corporate stock holdings

Question 63

Suppose Tracy obtains 7 units of utility from the last dollar of income she receives and Brent obtains 7 units of utility from his last dollar of income.Assume both Brent and Tracy have the same capacity to derive utility from income with identical marginal-utility-of-income-curves.Those who favor an equal distribution of income would:

A) advocate redistributing income from Brent to Tracy.
B) advocate redistributing income from Tracy to Brent.
C) be content with this distribution of income between Tracy and Brent.
D) argue that any redistribution of income between them would increase total utility.

Question 64

The necessity to maintain incentives to work and incentives to produce output would be a point made by an individual making the case for:

A) income equality.
B) income inequality.
C) maximization of total utility.
D) maximization of marginal utility.

Question 65

Which would best be considered part of income?

A) Wages and salaries
B) The value of one's home
C) Corporate stock holdings
D) Money in a bank account

Question 66

What would be an example of how pure luck contributes to income inequality?

A) Approval to receive unemployment benefits
B) Receipt of a government grant for housing
C) Selection as winner of a state lottery
D) Admission to a state university

Question 67

Which is one cause of the unequal distribution of income in the United States?

A) Income mobility over time
B) Differences in preferences for work and leisure
C) The high levels of noncash transfers
D) The low benefit-reduction rate

Question 68

Suppose Rita obtains 10 units of utility from the last dollar of income she receives and David obtains 6 units of utility from his last dollar of income.Assume both David and Rita have the same capacity to derive utility from income with identical marginal-utility-of-income-curves.Those who favor an equal distribution of income would:

A) advocate redistributing income from David to Rita.
B) advocate redistributing income from Rita to David.
C) be content with this distribution of income between Rita and David.
D) argue that any redistribution of income between them would increase total utility.

Question 69

Which of the following is not one of the causes of the unequal distribution of income in the United States?

A) Ability differences
B) Job preferences and job risks
C) Education and training
D) The dispersion of market power

Question 70

"A more equal distribution of income in the United States would result in greater total consumer satisfaction." This statement is based on the concept that:

A) income inequality is unfair.
B) income inequality is undemocratic.
C) income equality stimulates efficiency.
D) incomes are subject to diminishing marginal utility.

Question 71

The equality-efficiency trade-off would be most closely associated with which one of the following statements?

A) The rich get richer and the poor get poorer.
B) The only way to create income equality is to take from the rich and give to the poor.
C) If cutting the income pie in more equal slices tends to shrink the pie,what amount of shrinkage will society tolerate?
D) People are less concerned with the larger question of income distribution than they are with the more specific issue of income inadequacy.

Question 72

Greater income equality that is achieved through the redistribution of income is thought to:

A) stimulate innovation and entrepreneurship.
B) promote economic efficiency in the economy.
C) increase incentives to work,save,and invest in the economy.
D) come at the opportunity cost of reduced production and income.

Question 73

What is a major reason for growing income inequality in the United States?

A) Higher marginal tax rates
B) Unemployment benefits
C) More skilled workers
D) Import competition

Question 74

Which is a cause of growing income inequality in the United States in the last decade?

A) Competition in exporting to other countries among several major industries
B) Industrial restructuring from services to goods production
C) A widening wage gap between skilled and unskilled workers
D) An increase in the progressivity of the federal tax system

Question 75

A stock reflecting,at a given time,the financial and real assets an individual has accumulated is:

A) income.
B) wealth.
C) preferences.
D) noncash transfers.

Question 76

The wages and salaries that people earn differ partly because of differences in:

A) wealth.
B) ability.
C) Social Security payments.
D) in-kind transfer payments.

Question 77

Which would be evidence of more income inequality over time in the United States?

A) An increase in the percentage of total personal income received by the lowest quintile
B) An increase in the percentage of total personal income received by the highest quintile
C) An increase in the percentage of total personal income received by the four lowest quintiles
D) A decrease in the percentage of total personal income received by the highest quintile

Question 78

Suppose that Teresa Thomas obtains 12 units of utility from the last dollar of income she receives,while Richard Voote obtains 7 units of utility from the last dollar of his income.Both have identical marginal-utility-of-income-curves.Those who:

A) favor an equal distribution of income would advocate redistributing income from Richard to Teresa.
B) favor an equal distribution of income would advocate redistributing income from Teresa to Richard.
C) favor an equal distribution of income would be content with the distribution of income between Teresa and Richard.
D) do not favor an equal distribution of income would argue that any redistribution between Teresa and Richard would increase total utility.

Question 79

The debate over income distribution focuses on the trade-off between:

A) unemployment and economic freedom.
B) equality and economic growth.
C) economic efficiency and equality.
D) unemployment and economic growth.

Question 80

Since 1970,the distribution of personal income in the United States has:

A) moved toward greater inequality.
B) moved toward greater equality.
C) remained about the same.
D) fluctuated considerably.