Question 1

What does a Lorenz curve illustrate?

Accepted Answer

The Lorenz curve is a graphical representation of the distribution of income within a country in a given time period. It shows the percentage of total income earned by the bottom x% of households, which is plotted against the percentage of total households from the bottom of the income distribution to the top. This curve is often used to measure income inequality within a country.

Question 2

Income inequality in the United States has increased somewhat over the past 25 years.Two factors that appear to have contributed to this are

Accepted Answer

Rapid technological change and expanding international trade have led to job displacement and wage stagnation for lower-skilled workers, while highly skilled workers in technology and international business have seen their incomes rise. This has contributed to income inequality in the United States. Tax cuts on high-income individuals and cuts in taxes on capital gains may also have played a role, but they are not the primary factors driving income inequality. Strong economic growth and low inflation are not enough to explain the increase in income inequality, as these factors do not necessarily benefit all income groups equally. Outsourcing of jobs by U.S. firms may also contribute to income inequality, but it is not as significant a factor as rapid technological change and expanding international trade.

Question 3

All Gini coefficients must lie between 0 and 1.The lower the value

Accepted Answer

The answer of All Gini coefficients must lie between 0...

Question 4

Which of the following is a transfer payment?

Accepted Answer

Transfer payments are payments made by the government to individuals or businesses that are not in exchange for goods or services. Social Security payments are a type of transfer payment.

Question 5

Which of the following groups had the highest poverty rate in 2014 in the United States?

Accepted Answer

Female heads of families had the highest poverty rate in 2014 in the United States, as per the Census Bureau's report. Approximately 30.6% of families headed by single women were living in poverty.

Question 6

The poverty rate is defined as the percentage of the

Accepted Answer

The poverty rate is calculated as the percentage of the population that falls below the federal government's poverty line, which is determined by income and family size. Therefore, choice D is the best answer. Choices A, B, and C are incorrect because they do not accurately define the poverty rate.

Question 7

The distribution of income typically refers to how income is distributed across the population ________.Income mobility looks at how a person or family's income changes ________.

Accepted Answer

The distribution of income refers to how income is distributed across the population in a particular year, while income mobility looks at how a person or family's income changes over time.

Question 8

Measures of poverty (for example, the poverty line)and the distribution of income (for example, the Lorenz curve and the Gini coefficient)are misleading for which of the following two reasons?

Accepted Answer

The measures of poverty and income distribution are misleading because they do not take into account income mobility over time and government programs meant to reduce poverty. This means that these measures may not accurately reflect the opportunities and resources available to individuals and households at different points in time or the impact of policies and programs designed to alleviate poverty.

Question 9

As a group, people with high incomes are likely to have

Accepted Answer

People with high incomes typically have access to greater amounts of capital, which they can use to invest in businesses or other income-generating opportunities. They also tend to have higher levels of productivity, either through their own skills and talents or by hiring and managing talented employees. While some individuals with high incomes may also inherit wealth or have high SAT scores, these factors are less consistently associated with high income than productivity and capital. Option B, greater-than-average holdings of stocks and bonds and lower-than-average productivity, is not consistently true for all high-income individuals, as some may choose to invest in other types of assets or generate income through non-financial means. Option D, a stable marriage and no children, is not necessarily associated with high income levels and is too specific to be a consistently accurate choice.

Question 10

Figure 18-7
  
Figure 18-7 shows the Lorenz curve for a hypothetical country.
-Refer to Figure 18-7.The second lowest 20 percent of households

Accepted Answer

According to the Lorenz curve in Figure 18-7, the second lowest 20 percent of households earn approximately 16% of the society's total income.

Question 11

Figure 18-7
  
Figure 18-7 shows the Lorenz curve for a hypothetical country.
-Refer to Figure 18-7.The second highest 20 percent of households

Accepted Answer

The answer of Figure 18-7
  
Figure 18-7 shows the...

Question 12

Which of the following summarizes the information provided by a Lorenz curve?

Accepted Answer

The Lorenz curve visually shows the distribution of income or wealth within a population. It plots the cumulative share of income or wealth on the vertical axis against the cumulative share of the population on the horizontal axis. The Gini coefficient, a numerical value calculated from the Lorenz curve, summarizes the income or wealth distribution by measuring the area between the Lorenz curve and a hypothetical line of perfect equality. A higher Gini coefficient indicates greater income or wealth inequality.

Question 13

Studies by the U.S.Census Bureau have shown that

Accepted Answer

The U.S. Census Bureau has shown that there is significant income mobility in the U.S. over time, indicating that individuals are able to move out of poverty and increase their income. This suggests that choice A and D, which imply extended periods of poverty, are not accurate. Additionally, the claim that income mobility is minimal (choice C) is contradicted by the Census Bureau's findings. Therefore, B is the best choice.

Question 14

If official poverty statistics for the United States included transfer payments individuals receive from the government, such as Social Security payments and other non-cash benefits such as food stamps,

Accepted Answer

Including transfer payments and non-cash benefits would increase individuals' reported income, thus reducing the poverty rate. However, it would not eliminate poverty entirely, nor would it necessarily impact income inequality. Additionally, it's unlikely that including these payments would cause an overstatement of poverty rates.

Question 15

In the United States

Accepted Answer

The income tax system in the United States does have an impact on the distribution of income, as it is a progressive tax system where those with higher incomes pay a higher percentage of their income in taxes. This helps to redistribute income to some extent. The after-tax income distribution is more equal than the before-tax distribution because of these progressive taxes and other government transfer programs such as social security and welfare. While there are still disparities in income, these programs help to mitigate those disparities to some extent. It is also possible for people to move out of poverty, although it can be difficult and is influenced by factors such as education, job opportunities, and access to resources. The degree of income mobility is relatively high compared to other countries, with studies showing that a significant portion of people move up or down the income ladder over the course of their lifetime.

Question 16

Absolute poverty measures vary from country to country.For example, in 2015, the poverty line in the United States for a family of four with two children was an annual income of $24,250 but economists often use a much lower threshold income of $1 per day when calculating the rate of poverty in poor countries.How is this absolute poverty measured?

Accepted Answer

Absolute poverty is measured by comparing the amount of goods and services that a household's income can purchase to an objective measure of the amount of income needed to sustain a certain predetermined standard of living. This measure is often used to calculate poverty rates in poor countries and is based on the minimum level of consumption necessary for survival. It is important to note that the absolute poverty measure varies from country to country and is often adjusted for factors such as inflation, cost of living, and household size.

Question 17

A Gini coefficient of ________ means that an income distribution is perfectly equal and a Gini coefficient of ________ means the income distribution is perfectly unequal.

Accepted Answer

A Gini coefficient of 0 means that every person in the population has the exact same income, yielding a perfectly equal income distribution. A Gini coefficient of 1 indicates that one person in the population has all of the income, yielding a perfectly unequal income distribution.

Question 18

The Gini coefficient for the United States in 1980 was 0.403.In 2014, the coefficient was equal to 0.480.This means that

Accepted Answer

The Gini coefficient is a measure of income inequality, with 0 indicating perfect equality and 1 indicating perfect inequality. The increase in the Gini coefficient from 0.403 in 1980 to 0.480 in 2014 suggests that income inequality increased during that time period. Choices A and B are not necessarily supported by the information provided, and while choice C may be a factor in income inequality, it does not explain the overall trend observed in the Gini coefficient.

Question 19

Which of the following statements best represents the opinion of many economists regarding the impact that changes in tax laws have had on recent changes in income inequality in the United States?

Accepted Answer

The answer of Which of the following statements best represents...

Question 20

Which of the following tax systems would help reduce income inequality the most?

Accepted Answer

A progressive tax system would help reduce income inequality the most because it places a higher tax burden on those with higher income levels, thus effectively redistributing wealth to those with lower income levels. Regressive and consumption tax systems would exacerbate income inequality as they place a higher tax burden on those with lower income levels. A proportional tax system would not have any effect on income inequality as all individuals would be taxed at the same rate regardless of their income level.

Quiz 18: Public Choice, Taxes, and the Distribution of Income