Question 1

Measures which aim at eliminating the income disparity between the rich and the poor affect incentives to work,innovate,take risks,acquire education,and so on.

Accepted Answer

When income disparity is eliminated, the incentives to work, innovate, take risks, and acquire education might decrease as there is no additional reward or incentive for achieving more. This is because the motivation for acquiring additional incomes is a significant driver for most of these productive decisions.

Question 2

Markets can function efficiently only when the private property rights are completely suspended and every resource in the economy is a commonly owned resource.

Accepted Answer

Markets function efficiently when private property rights are legally recognized and enforced, allowing individuals and businesses to make decisions based on the value of the resources they own or control. Common ownership of resources can lead to problems such as the tragedy of the commons, where no individual has the incentive to take care of a commonly owned resource, leading to overuse and depletion.

Question 3

The incentives created by foreign aid are analogous to the incentives created by the welfare systems and so might not be conducive to economic growth.

Accepted Answer

Both foreign aid and welfare systems can create disincentives for work and productivity, which can ultimately hinder economic growth. For example, if foreign aid is given without any conditions or requirements for recipient countries to implement necessary economic reforms or promote private sector development, it can perpetuate a cycle of dependency on aid and discourage the development of sustainable economic practices. Similarly, if welfare systems provide benefits without requiring recipients to actively seek employment or participate in job training programs, it can discourage work and productivity.

Question 4

Even when legal title is established in the developing countries,it is often difficult to use that title because of the failure of countries to enforce people's ownership of property.

Accepted Answer

Legal title alone is not enough to ensure secure property rights. The failure to enforce ownership can lead to disputes and insecurity, even when titles have been established.

Question 5

Income distribution across the world is highly uneven,hence the corresponding Gini coefficient is very small.

Accepted Answer

The statement is incorrect. Income distribution across the world is highly uneven, hence the corresponding Gini coefficient is high, not small. The Gini coefficient measures the inequality among values of a frequency distribution, in this case, the distribution of income among individuals or households in a country or across the world. A Gini coefficient of zero represents perfect equality (everyone has the same income) and a Gini coefficient of 1 represents maximum inequality (one person has all the income, while everyone else has none).

Question 6

It has been observed that the most prosperous nations are those which have enjoyed stable democratic governments.This implies there is a link between a history of stable democracy and national well-being.

Accepted Answer

Numerous studies have shown a correlation between stable democracy and economic development, social welfare, education, and health. When citizens have a voice in decision-making through a democratic process, they are more likely to have their needs and concerns addressed by the government. This can lead to greater citizen satisfaction, trust and social cohesion which can in turn boost economic productivity and investment. On the other hand, countries without democratic systems tend to have higher levels of corruption, political instability, and economic inequality.

Question 7

If the guaranteed income floor for a family of four is $14,000 and the tax rate is 50 percent,then the break-even income for this family will be $28,000.

Accepted Answer

The break-even income is calculated by dividing the guaranteed income by the tax rate. $14,000 / 0.50 = $28,000.

Question 8

Foreign aid at times actually hinders economic growth by creating wrong incentives.

Accepted Answer

Foreign aid can create wrong incentives by discouraging domestic production and investment since resources are readily available from foreign aid. It can also foster corruption and dependency on foreign aid, which can harm a country's economic growth.

Question 9

Under the negative income tax program,a family will always receive some amount of transfer from the government,irrespective of its income level.

Accepted Answer

Under the negative income tax program, families with income above a certain threshold do not receive transfers; only those below the threshold receive government assistance.

Question 10

The income variation across the countries is the result of differential rates of economic growth being experienced by them.

Accepted Answer

Economic growth rates vary across countries, and this results in differences in income levels. Countries with higher rates of economic growth generally experience faster increases in income levels, while those with slower growth rates may experience stagnant or declining income levels. These differences in economic growth rates can be attributed to a variety of factors, including resource availability, government policies, investment levels, and technological innovation.

Question 11

The world Lorenz curve coincides with the line of income equality because the average income of the different countries are more or less equal.

Accepted Answer

The Lorenz curve illustrates the distribution of income or wealth within a population, comparing the percentage of income received with the percentage of the population. The curve is concave to the origin, showing that a smaller proportion of the population holds a larger proportion of the income or wealth. The line of income equality is a hypothetical straight line in which everyone earns exactly the same income. Therefore, the world Lorenz curve will most likely not coincide with the line of income equality since income inequality exists in the world.

Question 12

If the negative income tax rate is less than 100 percent,the break-even income level will be lower than the poverty level,and families who are officially considered poor will not receive the benefits.

Accepted Answer

If the negative income tax rate is less than 100 percent, the break-even income level can still be at or above the poverty level, allowing families considered poor to receive benefits. The break-even point depends on the specific parameters of the tax system, not solely on the tax rate.

Question 13

Foreign aid should be given to all poor countries without considering if the aid reaches the poor and the needy.

Accepted Answer

Foreign aid should only be given to poor countries if there are measures in place to ensure that the aid reaches those who need it the most. Giving aid without considering if it reaches the poor and needy can lead to corruption and waste of resources. The goal of foreign aid is to alleviate poverty and improve the living conditions of people in developing countries, not to enrich corrupt officials or benefit those who are already wealthy. Therefore, aid should be given with accountability and transparency to ensure that it reaches the intended recipients.

Question 14

For people who are too well off to receive welfare benefits but who would become eligible for negative income tax payments,the negative income tax might create work disincentives.

Accepted Answer

Negative income tax payments decrease as a person's earned income increases. This means that some people may choose not to work or reduce their work hours in order to maintain their eligibility for the payments, creating a potential work disincentive.

Question 15

In order to ensure that the poor countries experience higher levels of economic growth,private property rights and title to property have to be created.

Accepted Answer

Private property rights provide individuals with the incentives and security necessary to invest in and improve their property, leading to increased productivity and economic growth. By establishing legal frameworks that enable private ownership of property and secure property rights, poor countries can attract investment, encourage entrepreneurship, and stimulate economic growth. Without these safeguards, individuals and businesses are less likely to invest in improving their property and may operate inefficiently, hindering economic growth.

Quiz 19: Income Distribution,Poverty and Government Policy