Question 1

Which of the following tax systems would help reduce income inequality the most?
A)a regressive tax system
B)a proportional tax system
C)a progressive tax system
D)a consumption tax system

Accepted Answer

A progressive tax system requires those with higher incomes to pay a higher percentage of their income in taxes, and therefore helps reduce income inequality by redistributing wealth to those with lower incomes.

Question 2

Which of the following summarizes the information provided by a Lorenz curve?
A)the Lorenz coefficient
B)the income distribution ratio
C)the Gini coefficient
D)the slope (the rise divided by the run)of the Lorenz curve at a particular point on the curve

Accepted Answer

The Lorenz curve summarizes the income distribution of a population by plotting the cumulative percentage of total income received against the cumulative percentage of the population. The Gini coefficient is a measure of income inequality that is derived from the Lorenz curve. It provides a single number summary of the degree of inequality in the income distribution, with values ranging from 0 (perfect equality) to 1 (perfect inequality). Therefore, C is the best choice as it directly summarizes the information provided by the Lorenz curve.

Question 3

In the United States
A)the income tax system has little or no impact on the distribution of income.
B)the after-tax income distribution of income is more equal than the before-tax distribution.
C)once a person is in poverty,it is very difficult for a person to get out of poverty.
D)the degree of income mobility is relatively low.

Accepted Answer

The income tax system in the United States is progressive, meaning that higher-income individuals pay a higher percentage of their income in taxes. This has an impact on the distribution of income, making it more equal after taxes are taken into account. Additionally, studies have shown that the after-tax distribution of income is more equal than the before-tax distribution. However, there is still a significant amount of income inequality in the United States. While it may be difficult for a person in poverty to escape poverty, there is still a degree of income mobility in the United States.

Question 4

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 ________.
A)in a particular year;over time
B)over a lifetime;each year
C)by age group;by education level
D)by race and gender;based on the state of the economy

Accepted Answer

The first blank refers to a specific point in time, while the second blank refers to a period of time. Option A is the only choice that has a correct match for both blanks.

Question 5

Which of the following groups had the highest poverty rate in 2014 in the United States?
A)Asians
B)blacks
C)Hispanics
D)female heads of families

Accepted Answer

Female heads of families had the highest poverty rate in 2014 at 34.2%, followed by blacks at 26.2%, Hispanics at 23.6%, and Asians at 10.1%.

Question 6

The poverty rate is defined as the percentage of the
A)labor force that is poor according to the federal government's definition of poverty.
B)population that is exempt from paying federal income taxes.
C)population who qualify to receive welfare payments and food stamps.
D)population that is poor according to the federal government's definition of poverty.

Accepted Answer

The poverty rate is the percentage of the population that is poor according to the federal government's definition of poverty. This definition takes into account income and family size to determine whether someone is living in poverty. Option A is incorrect because the poverty rate includes all individuals living in poverty, not just those in the labor force. Option B is incorrect because income tax exemptions do not necessarily equate to poverty. Option C is also incorrect because not all individuals who qualify for government assistance are necessarily living in poverty.

Question 7

All Gini coefficients must lie between 0 and 1.The lower the value
A)the more unequal the income distribution.
B)the closer the income distribution is to being equal.
C)the greater the degree of poverty.
D)the lower the degree of poverty according to the federal government's definition of poverty.

Accepted Answer

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

Question 8

Income inequality in the United States has increased somewhat over the past 25 years.Two factors that appear to have contributed to this are
A)tax cuts on high-income individuals and large increases in prices of stocks.
B)strong economic growth and low inflation.
C)rapid technological change and expanding international trade.
D)outsourcing of jobs by U.S.firms and cuts in taxes on capital gains.

Accepted Answer

Rapid technological change and expanding international trade have led to the decline of many traditional jobs and the creation of new, high-skilled jobs that require specialized training and education. This has led to a widening gap between those with the education and skills to succeed in the new economy and those without, which has contributed to income inequality. Tax cuts and stock prices may have played a role, but they are not the primary factors. Economic growth and low inflation, while positive factors, have not necessarily led to decreased income inequality. Outsourcing and tax cuts on capital gains may have also contributed to income inequality, but they are not as significant as the impact of technological change and trade.

Question 9

Studies by the U.S.Census Bureau have shown that
A)families remain below the poverty line for an average of five years.
B)there is significant income mobility in the U.S.over time.
C)income mobility in the U.S.is minimal.
D)over half the people below the poverty line never move out of poverty.

Accepted Answer

The U.S. Census Bureau has shown significant income mobility in the U.S. over time. This indicates that individuals and families can move out of poverty with hard work and opportunity. The other choices are either too specific (A) or too general and inaccurate (C, D).

Question 10

A Gini coefficient of ________ means that an income distribution is perfectly equal and a Gini coefficient of ________ means the income distribution is perfectly unequal.
A)0;1
B)1;0
C)0,100
D)100,0

Accepted Answer

A Gini coefficient of 0 means that every individual in the population has the same income, resulting in perfect equality. A Gini coefficient of 1 means that one individual has all the income and everyone else has none, resulting in perfect inequality. Therefore, the best choice is A, where option A represents perfect equality and option 1 represents perfect inequality.

Question 11

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?
A)Reductions in income tax rates have favored high-income individuals more than low-income individuals.As a result,reductions in federal income tax rates have led to more income inequality.
B)Reductions in income tax rates have created greater incentives for low-income individuals to work,save,and invest.As a result,reductions in federal income tax rates have led to less income inequality.
C)Reductions in income tax rates probably have had little impact on the distribution of income.
D)Reductions in income tax rates have been offset by increases in corporate income tax rates and payroll taxes.As a result,greater income inequality in the 1990s has been followed by a more equal distribution of income since 2001.

Accepted Answer

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

Question 12

Figure 18-7 shows the Lorenz curve for a hypothetical country.
-Refer to Figure 18-7.The second lowest 20 percent of households
A)earn 12 percent of the society's total income.
B)earn 16 percent of the society's total income.
C)earn 28 percent of the society's total income.
D)earn 40 percent of the society's total income.

Accepted Answer

The Lorenz curve shows the cumulative percentage of income earned by different percentiles of the population. The second lowest 20 percent of households fall in the 20-40 percentile range on the x-axis, which corresponds to around 16 percent of the society's total income on the y-axis. Therefore, the answer is B.

Question 13

Figure 18-7 shows the Lorenz curve for a hypothetical country.
-Refer to Figure 18-7.The second highest 20 percent of households
A)earn 24 percent of the society's total income.
B)earn 28 percent of the society's total income.
C)earn 42 percent of the society's total income.
D)earn 72 percent of the society's total income.

Accepted Answer

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

Question 14

The Gini coefficient for the United States in 1980 was 0.403.In 2014,the coefficient was equal to 0.480.This means that
A)per capita income in the United States rose from 1980 to 2014.
B)there was a decrease in the amount of government transfer payments from 1980 to 2014.
C)cuts in federal income tax rates in the early 1980s and 2001 helped to reduce income inequality.
D)income inequality increased from 1980 to 2014.

Accepted Answer

The Gini coefficient is a measure of income inequality, with 0 representing perfect equality and 1 representing perfect inequality (where one person has all the income). The increase in the Gini coefficient from 0.403 in 1980 to 0.480 in 2014 indicates that income inequality in the United States increased over this time period. Therefore, choice D is the correct answer. Choices A, B, and C are all incorrect because they suggest factors that do not necessarily relate to changes in income inequality.

Question 15

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
A)the poverty rate would be lower.
B)poverty would be eliminated.
C)income inequality would be greater.
D)the poverty rate would be overstated.

Accepted Answer

Including transfer payments and non-cash benefits would increase the income of individuals, thereby reducing the poverty rate. However, it may not completely eliminate poverty.

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?
A)by comparing the percentage of households living below the poverty line to the total population
B)by comparing a household's income to the income required to maintain the average standard of living in a society at a particular time
C)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
D)by comparing the amount of goods and services that a household's income can purchase in one country to the amount of goods and services that a household's income can purchase in another country of comparable living standard

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 necessary to sustain a certain predetermined standard of living. This is based on the idea that there is a minimum level of income that is required for a person to afford basic necessities such as food, shelter, and clothing. Different countries have different standards, but the general approach is to identify a standard of living and then calculate the cost of meeting that standard. The poverty line is then set based on the amount of income needed to meet that cost.

Question 17

As a group,people with high incomes are likely to have
A)greater-than-average family inheritances and greater than average SAT scores.
B)greater-than-average holdings of stocks and bonds and lower-than-average productivity.
C)greater-than-average productivity and greater-than-average amounts of capital.
D)a stable marriage and no children.

Accepted Answer

People with high incomes are likely to have greater-than-average productivity, meaning they are able to generate a high output of goods or services in relation to the input of resources (such as time and effort). They are also likely to have greater-than-average amounts of capital, which could include savings, investments, and other sources of wealth. This combination of high productivity and high capital allows them to earn more money and accumulate more wealth over time.

Question 18

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?
A)First,these measures do not take into account income mobility over time.Second,these measures ignore the effects of government programs meant to reduce poverty.
B)First,none of these measures are adjusted for inflation.Second,they do not measure income on a per capita basis.
C)First,these measures fail to include the income U.S.citizens earn working for foreign firms that have operations located in the United States.Second,these measures fail to include income foreign citizens earn working for U.S.firms that have operations in foreign countries.
D)First,these measures fail to include dividend and interest income earned on stocks and bonds.Second,these measures fail to include the value of goods and services citizens make for their own consumption that are not sold in markets.

Accepted Answer

Measures of poverty and income distribution are misleading because they do not take into account income mobility over time and ignore the effects of government programs meant to reduce poverty.

Question 19

What does a Lorenz curve illustrate?
A)a comparison of the distribution of income in two different countries
B)the distribution of income within a country in a given time period
C)the share of taxes paid by different groups of households
D)the change over time in the percentage of households with incomes that place them below the poverty line

Accepted Answer

A Lorenz curve illustrates the distribution of income within a country in a given time period, showing the cumulative percentage of total income earned by different percentile groups of the population. It helps to analyze income inequality and the concentration of wealth within a society.

Question 20

Which of the following is a transfer payment?
A)the food stamp program
B)a tax deduction
C)Social Security payments
D)an income tax credit

Accepted Answer

The answer of Which of the following is a transfer...

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

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

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

In the United States

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 .

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

The poverty rate is defined as the percentage of the

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

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

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

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

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?

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

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

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

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

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

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?

What does a Lorenz curve illustrate?

Which of the following is a transfer payment?