Question 1

The Lorenz curve and the Gini coefficient do not change over time because people always stay within their income brackets.

Accepted Answer

A) True 
 B)False

Question 2

Because the poverty line has been fixed at a given income level, more and more people have lived above the poverty line over time.

Accepted Answer

A) True 
 B)False

Question 3

Work disincentives from welfare payments may be reduced by

Accepted Answer

A) reducing the amount of welfare payments at all income levels. 
B) eliminating all social insurance programs. 
C) reducing the amount of welfare only at the top income level. 
D) increasing the amount of welfare paid to those who do not want to work. 
E) reducing the amount of welfare paid at lower income levels. 
A) reducing the amount of welfare payments at all income levels. 
B) eliminating all social insurance programs. 
C) reducing the amount of welfare only at the top income level. 
D) increasing the amount of welfare paid to those who do not want to work. 
E) reducing the amount of welfare paid at lower income levels.

Question 4

The Lorenz curve shows ____ within a society.

Accepted Answer

A) the income distribution 
B) the absolute level of income 
C) the per capita annual income of individuals 
D) who the poor are 
E) the quality of life of the poor 
A) the income distribution 
B) the absolute level of income 
C) the per capita annual income of individuals 
D) who the poor are 
E) the quality of life of the poor

Question 5

In the United States, income and employment data are collected regularly through the

Accepted Answer

A) Current Population Survey. 
B) census. 
C) income tax. 
D) Income and Employment Survey. 
E) records of banks. 
A) Current Population Survey. 
B) census. 
C) income tax. 
D) Income and Employment Survey. 
E) records of banks.

Question 6

The Laffer curve indicates that very high rates of taxation can actually reduce tax revenue.

Accepted Answer

A) True 
 B)False

Question 7

Analyze the distribution of household incomes given in the table below. Rank the families by income. Draw a Lorenz curve for the income distribution of these five families. Is their distribution of incomes more equal than the distribution of incomes for the entire population of the United States?

Accepted Answer

Families ranked by income: @#IMG-DLM& The diagram

Question 8

Exhibit 14-4  
-Exhibit 14-4 shows hours worked per week and welfare payment received. The total weekly income is the sum of the wage payment and the welfare payment. If the hourly wage is $5, then the welfare program

Accepted Answer

A) gives workers incentive to work more hours. 
B) gives workers incentive to work fewer hours. 
C) does not affect workers' incentive to work. 
D) gives more welfare payment as the recipients works more hours. 
E) matches welfare payment with the wage rate. 
A) gives workers incentive to work more hours. 
B) gives workers incentive to work fewer hours. 
C) does not affect workers' incentive to work. 
D) gives more welfare payment as the recipients works more hours. 
E) matches welfare payment with the wage rate.

Question 9

Which of the following is not a reason that tax revenue might fall at very high tax rates?

Accepted Answer

A) People have a greater incentive to practice tax avoidance. 
B) Government officials fail to enforce tax laws. 
C) People tend to commit more tax evasion. 
D) People work less in the case of a personal income tax. 
E) Corporations inflate expenses in the case of a corporate income tax. 
A) People have a greater incentive to practice tax avoidance. 
B) Government officials fail to enforce tax laws. 
C) People tend to commit more tax evasion. 
D) People work less in the case of a personal income tax. 
E) Corporations inflate expenses in the case of a corporate income tax.

Question 10

A household's income tax is zero even though its income is greater than zero because

Accepted Answer

A) the taxable income is negative. 
B) the household income is less than the taxable income. 
C) the household income is more than the sum of exemptions and deductions. 
D) the household income is less than the sum of exemptions and deductions. 
E) the household has no exemptions or deductions. 
A) the taxable income is negative. 
B) the household income is less than the taxable income. 
C) the household income is more than the sum of exemptions and deductions. 
D) the household income is less than the sum of exemptions and deductions. 
E) the household has no exemptions or deductions.

Question 11

To minimize inefficiency from taxes on goods,

Accepted Answer

A) a good with low elasticity of demand should be taxed at the same rate as a good with high elasticity of demand. 
B) a good with low elasticity of demand should be taxed at a lesser rate than a good with high elasticity of demand. 
C) a good with low elasticity of demand should be taxed at a greater rate than a good with high elasticity of demand. 
D) a good with low elasticity of demand should never be taxed. 
E) the government should always impose the maximum amount of tax. 
A) a good with low elasticity of demand should be taxed at the same rate as a good with high elasticity of demand. 
B) a good with low elasticity of demand should be taxed at a lesser rate than a good with high elasticity of demand. 
C) a good with low elasticity of demand should be taxed at a greater rate than a good with high elasticity of demand. 
D) a good with low elasticity of demand should never be taxed. 
E) the government should always impose the maximum amount of tax.

Question 12

Exhibit 14-3  
-An individual receiving money from the government because his or her income is very low is receiving a(n)

Accepted Answer

A) tax transfer. 
B) free transfer. 
C) aid transfer. 
D) means-tested transfer. 
E) income transfer. 
A) tax transfer. 
B) free transfer. 
C) aid transfer. 
D) means-tested transfer. 
E) income transfer.

Question 13

As income inequality increases, the Lorenz curve becomes increasingly bowed.

Accepted Answer

A) True 
 B)False

Question 14

The more price-elastic the demand, the greater the portion paid by producers for a per-unit tax on a good.

Accepted Answer

A) True 
 B)False

Question 15

In looking at income distribution, what is a quintile?

Accepted Answer

A quintile is 20 percent, or o

Question 16

Why is it irrelevant whether the employer or the worker directly pays a payroll tax?

Accepted Answer

The only thing affected by who pays the

Question 17

In designing a tax system, the government considers the conflicting goals of efficiency and equity.

Accepted Answer

A) True 
 B)False

Question 18

Exhibit 14-5  
-Refer to Exhibit 14-5. Which of the following statements is true?

Accepted Answer

A) The data suggest that Rural is a poorer nation than Urbanal. 
B) For Rural to have income equality, the first quintile would have to make 15 percent more of the nation's income. 
C) Rural operates under a market economy whereas Urbanal's economic system is based on something other than markets. 
D) Urbanal has a more homogeneous society. 
E) The poorest people in Rural must have a lower standard of living than those in Urbanal. 
A) The data suggest that Rural is a poorer nation than Urbanal. 
B) For Rural to have income equality, the first quintile would have to make 15 percent more of the nation's income. 
C) Rural operates under a market economy whereas Urbanal's economic system is based on something other than markets. 
D) Urbanal has a more homogeneous society. 
E) The poorest people in Rural must have a lower standard of living than those in Urbanal.

Question 19

Distribution of income is the same as distribution of wealth.

Accepted Answer

A) True 
 B)False

Question 20

If the average tax rate falls as income rises, the tax is called a

Accepted Answer

A) sales tax. 
B) progressive tax. 
C) flat tax. 
D) proportional tax. 
E) regressive tax. 
A) sales tax. 
B) progressive tax. 
C) flat tax. 
D) proportional tax. 
E) regressive tax.

Exam 14: Taxes, Transfers, and Income Distribution

The Lorenz curve and the Gini coefficient do not change over time because people always stay within their income brackets.

Because the poverty line has been fixed at a given income level, more and more people have lived above the poverty line over time.

Work disincentives from welfare payments may be reduced by

The Lorenz curve shows ____ within a society.

In the United States, income and employment data are collected regularly through the

The Laffer curve indicates that very high rates of taxation can actually reduce tax revenue.

Analyze the distribution of household incomes given in the table below. Rank the families by income. Draw a Lorenz curve for the income distribution of these five families. Is their distribution of incomes more equal than the distribution of incomes for the entire population of the United States?

Exhibit 14-4 -Exhibit 14-4 shows hours worked per week and welfare payment received. The total weekly income is the sum of the wage payment and the welfare payment. If the hourly wage is $5, then the welfare program

Which of the following is not a reason that tax revenue might fall at very high tax rates?

A household's income tax is zero even though its income is greater than zero because

To minimize inefficiency from taxes on goods,

Exhibit 14-3 -An individual receiving money from the government because his or her income is very low is receiving a(n)

As income inequality increases, the Lorenz curve becomes increasingly bowed.

The more price-elastic the demand, the greater the portion paid by producers for a per-unit tax on a good.

In looking at income distribution, what is a quintile?

Why is it irrelevant whether the employer or the worker directly pays a payroll tax?

In designing a tax system, the government considers the conflicting goals of efficiency and equity.

Exhibit 14-5 -Refer to Exhibit 14-5. Which of the following statements is true?

Distribution of income is the same as distribution of wealth.

If the average tax rate falls as income rises, the tax is called a

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The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

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Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

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Public Goods, Externalities, and Government Behavior

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Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

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Unemployment and Employment

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The Nature and Causes of Economic Fluctuations

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Economic Growth Around the World

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