Question 1

The basic idea behind a negative income tax is to

Accepted Answer

The basic idea behind a negative income tax is to help the poor without destroying incentives to work. This is achieved by providing a guaranteed minimum income to those below a certain income threshold, while gradually reducing the amount of assistance as income increases. By doing so, individuals are incentivized to work and earn more income, as they will not lose their benefits all at once.

Question 2

Many economists believe that

Accepted Answer

Many economists argue that a negative income tax system would be more economically efficient than the current welfare system because it eliminates the welfare trap that discourages people from working and creates administrative inefficiencies. Additionally, a negative income tax system would provide a financial safety net for those in need, which would increase economic equality. However, there is debate about the exact design and implementation of a negative income tax system, and some argue that it could be less efficient than the current welfare system if not implemented properly.

Question 3

Who would receive payments from the government under a negative income tax system?

Accepted Answer

Only people with incomes below a certain level would receive payments from the government under a negative income tax system. This level is called the "poverty threshold," and those who fall below it would receive payments to ensure that their income reaches at least that level.

Question 4

A free market system tends to

Accepted Answer

A free market system tends to produce a relatively unequal distribution of income because individuals who possess more desirable skills and abilities will be able to command higher wages in the labor market. This leads to differences in income levels and wealth accumulation. Additionally, in a free market system, businesses are motivated to maximize profits, which may mean paying employees less than the full value of their labor.

Question 5

In the negative income tax framework, a break-even point of $16,000 and a tax rate of 25 percent imply a guarantee of which of the following figures?

Accepted Answer

The guarantee is calculated as the break-even point multiplied by the tax rate, so $16,000 * 25% = $4,000.

Question 6

With a negative income tax providing a minimum of $20,000 and a tax rate of 25 percent, what amount of supplement would the government pay to a household earning $10,000?

Accepted Answer

First, we need to determine the household's net income after taxes. To do this, we can subtract 25% of their income ($10,000) from their income:

$10,000 - (0.25 x $10,000) = $10,000 - $2,500 = $7,500

Since the household's net income is less than the minimum provided by the negative income tax ($20,000), they would receive a supplement to bring them up to that level.

To determine the amount of the supplement, we can subtract their net income from the minimum provided by the negative income tax:

$20,000 - $7,500 = $12,500

Therefore, the government would pay a supplement of $12,500 to the household earning $10,000, making their total income $20,000.

The closest answer choice is C, $17,500, which is incorrect. The correct answer is $12,500, which is not listed as an answer choice.

Question 7

Assume that a company has several male workers who do not give their full cooperation to female supervisors making them less effective as supervisors.Economists would refer to this type of situation as ____.

Accepted Answer

This situation is an example of discrimination by fellow workers, where the male workers' lack of cooperation with female supervisors due to their gender affects the supervisors' effectiveness. This type of discrimination arises from the attitudes or actions of coworkers rather than policies or practices of the employer.

Question 8

Critics of affirmative action programs argue that they

Accepted Answer

Critics argue that affirmative action can impair economic efficiency by limiting the ability of firms to hire based solely on productivity, as they may need to consider diversity factors.

Question 9

In the United States, the distribution of income after the income tax is ____ the distribution of income before the income tax.

Accepted Answer

The income tax system in the United States is designed to be progressive, meaning that those with higher incomes pay a higher percentage of their income in taxes. This helps to make the distribution of income slightly more equal after taxes are taken into account.

Question 10

The public assistance program that economists believe can promote economic equality at the least cost in economic efficiency is

Accepted Answer

A negative income tax (NIT) is a public assistance program that provides financial assistance to low-income households through a tax system. The NIT is designed to supplement the income of those below a certain income level while removing the disincentives to work that traditional welfare programs create. Economists believe that the NIT can promote economic equality at the least cost in economic efficiency compared to other public assistance programs.

Question 11

Tax loopholes serve to

Accepted Answer

Tax loopholes are provisions in tax laws that allow taxpayers to legally reduce their tax liability by exploiting the gaps, loopholes, or inefficiencies in the tax code. The effect of tax loopholes is to erode the progressivity of the income tax system, which means that the tax burden is shifted away from the wealthy and onto the middle or lower-income taxpayers. This results in a less fair, less efficient, and less effective tax system. Tax loopholes do not improve the incomes of the poor, increase the progressivity of the income tax, or decrease work incentives for the poor.

Question 12

Which of the following taxes tend to make income distribution in the United States more equal?

Accepted Answer

Personal income taxes are progressive, meaning higher earners pay a higher percentage of their income in taxes. This can help to reduce income inequality by redistributing wealth from higher earners to lower earners. Sales taxes tend to be regressive, meaning lower earners may end up paying a higher percentage of their income in taxes than higher earners. Payroll taxes are also regressive, with the Social Security payroll tax being capped at a certain income level, so higher earners pay a smaller percentage of their income in these taxes compared to lower earners. Overall, personal income taxes tend to have the largest impact on reducing income inequality.

Question 13

Affirmative action programs are intended to combat

Accepted Answer

Affirmative action programs are designed to address and combat discriminatory practices by employers against individuals based on their race, gender, or ethnicity. These practices have historically excluded certain groups from opportunities in education, employment, and other areas of society. The purpose of affirmative action programs is to promote equal opportunity and diversity by actively seeking out and providing opportunities for underrepresented groups.

Question 14

Economists favor a negative income tax because they believe

Accepted Answer

Economists generally favor a negative income tax because they believe it is more efficient than the existing welfare system. This is because NIT provides better work incentives and can reduce the disincentives to work that the current welfare system creates. Additionally, it is argued that the current welfare programs have excessively high work incentives, which result in less total work. The option A is not a valid reason to favor NIT as it does not benefit the society as a whole. Option B provides a valid reason to favor NIT, but it is incomplete as it does not consider the efficiency of the system. Therefore, the correct answer is C.

Question 15

Affirmative action programs,

Accepted Answer

Affirmative action programs are controversial and have been criticized for potentially leading to reverse discrimination and hiring unqualified individuals, while supporters argue they help in finding and hiring qualified minorities and women.

Question 16

In the Santa Rita silver mines in Arizona in 1870, Mexican miners received about $12 per month while "American" miners received $70.Although the wages of both groups tended to rise over time, the gap persisted until at least 1910.Mexican and American miners did the same work and were equally productive.Economists call this pay differential

Accepted Answer

This pay differential is an example of economic discrimination, where workers are paid differently based on characteristics such as ethnicity or nationality, despite having the same productivity and job responsibilities.

Question 17

With a negative income tax, the larger the difference between the break-even income level and the guaranteed level,

Accepted Answer

The larger the difference between the break-even income level and the guaranteed level, the greater the incentive to work, as individuals will see a greater benefit in earning income above the break-even level since they will keep a higher percentage of their earnings.

Question 18

The economic theory of discrimination suggests that the practice of apartheid in South Africa should have

Accepted Answer

The economic theory of discrimination suggests that discriminatory policies like apartheid will lead to inefficiencies in the allocation of resources and reduce economic growth overall. Therefore, apartheid would have worsened the economic conditions of all races present in South Africa as it excluded a sizable part of the population from the labor force, limited their opportunities for education, and access to other resources. As a result, it would have negatively impacted the economic growth, not just for black South Africans but also for other racial groups, including whites.

Question 19

In the negative income tax plan, a guarantee of $5,000 and a tax rate of 50 percent imply a break-even income of which of the following figures?

Accepted Answer

The break-even income is the income level at which an individual pays taxes equal to the guaranteed income, thus receiving no net benefit from the negative income tax. With a guarantee of $5,000 and a tax rate of 50%, the break-even income is calculated as $5,000 / 0.5 = $10,000.

Question 20

A tax is more likely to promote economic equality if it is

Accepted Answer

A progressive tax means that those who have higher incomes pay a higher percentage of their income in taxes. This helps to redistribute wealth and promote economic equality by reducing income disparities between the rich and poor. A regressive tax would have the opposite effect, where those with lower incomes would pay a higher percentage of their income in taxes compared to those with higher incomes. A proportional tax would have no effect on economic equality as everyone pays the same percentage of their income in taxes. An indirect tax is a tax on consumption and may not have a direct impact on income inequality.

Quiz 20: Poverty, Inequality, and Discrimination