Question 1

The normal life cycle pattern of income

Accepted Answer

A) contributes to more inequality in the distribution of annual income and to more inequality in living standards. 
B) contributes to more inequality in the distribution of annual income, but it does not necessarily contribute to more inequality in living standards. 
C) contributes to less inequality in the distribution of annual income and to less inequality in living standards. 
D) has no effect on either the distribution of annual income or on living standards. 
A) contributes to more inequality in the distribution of annual income and to more inequality in living standards. 
B) contributes to more inequality in the distribution of annual income, but it does not necessarily contribute to more inequality in living standards. 
C) contributes to less inequality in the distribution of annual income and to less inequality in living standards. 
D) has no effect on either the distribution of annual income or on living standards.

Question 2

Which of the following statements is not correct?

Accepted Answer

A) The percentage of the population that suffers from long-term poverty is far smaller than the percentage of the population that suffers from short-term poverty because there is a high level of economic mobility in the United States. 
B) Permanent income is a better measure of a family's ability to buy the necessities of life than is transitory income. 
C) The economic life cycle theory explains why gifts of goods and services reduce poverty for the very young and the very old. 
D) Because people can borrow and save to smooth out changes in income, their standard of living in any one year depends more on lifetime income than on a particular year's income. 
A) The percentage of the population that suffers from long-term poverty is far smaller than the percentage of the population that suffers from short-term poverty because there is a high level of economic mobility in the United States. 
B) Permanent income is a better measure of a family's ability to buy the necessities of life than is transitory income. 
C) The economic life cycle theory explains why gifts of goods and services reduce poverty for the very young and the very old. 
D) Because people can borrow and save to smooth out changes in income, their standard of living in any one year depends more on lifetime income than on a particular year's income.

Question 3

The maximin criterion is the idea that the government should aim to maximize the well-being of the worst-off person in society.

Accepted Answer

A) True 
 B)False

Question 4

A binding minimum wage

Accepted Answer

A) affects employees but not employers. 
B) lowers the productivity of workers. 
C) raises the cost of labor to firms. 
D) All of the above are correct. 
A) affects employees but not employers. 
B) lowers the productivity of workers. 
C) raises the cost of labor to firms. 
D) All of the above are correct.

Question 5

Which of the three political philosophies discussed in the textbook, if any, view the total income of society as a shared resource that a social planner can freely redistribute to achieve some social goal?

Accepted Answer

utilitaria

Question 6

Suppose the government used the following formula to compute a family's tax liability:
Taxes owed = 28% of income - $8,000. How much would a family have to earn to owe $0 in taxes?

Accepted Answer

A) $8,000 
B) $16,283 
C) $28,571 
D) $30,694 
A) $8,000 
B) $16,283 
C) $28,571 
D) $30,694

Question 7

A society consists of three individuals: Larry, Margaret, and Nina. In terms of income and utility, Larry is currently best-off, Margaret ranks in the middle, and Nina is worst-off. Which of the following statements is correct?

Accepted Answer

A) Utilitarianism suggests that government policies should strive to maximize the sum of all three individuals' utility. 
B) Liberalism suggests that government policies should strive to maximize the sum of Larry's utility and Nina's utility. 
C) Libertarianism suggests that government policies should strive to make Nina better off at the cost of Larry and Margaret. 
D) Utilitarianism suggests that the government policies should strive to make Nina better off than Margaret. 
A) Utilitarianism suggests that government policies should strive to maximize the sum of all three individuals' utility. 
B) Liberalism suggests that government policies should strive to maximize the sum of Larry's utility and Nina's utility. 
C) Libertarianism suggests that government policies should strive to make Nina better off at the cost of Larry and Margaret. 
D) Utilitarianism suggests that the government policies should strive to make Nina better off than Margaret.

Question 8

Which of the following statements is correct?

Accepted Answer

A) A minimum wage law will result in less additional unemployment if labor demand is elastic rather than inelastic. 
B) An in-kind transfer allows a person to use the benefit to purchase whatever they think they need most. 
C) If a tax policy states that taxes owed equal 1/3 of income less $15,000, a person earning $25,000 per year would owe $6,666.67 in taxes. 
D) Welfare reform enacted in 1996 limited the amount of time recipients could stay on welfare. 
A) A minimum wage law will result in less additional unemployment if labor demand is elastic rather than inelastic. 
B) An in-kind transfer allows a person to use the benefit to purchase whatever they think they need most. 
C) If a tax policy states that taxes owed equal 1/3 of income less $15,000, a person earning $25,000 per year would owe $6,666.67 in taxes. 
D) Welfare reform enacted in 1996 limited the amount of time recipients could stay on welfare.

Question 9

Medicaid and food stamps are

Accepted Answer

A) available only to the elderly. 
B) forms of in-kind assistance. 
C) forms of cash assistance. 
D) transfer payments. 
A) available only to the elderly. 
B) forms of in-kind assistance. 
C) forms of cash assistance. 
D) transfer payments.

Question 10

Table 20-3
The Distribution of Income in Edgerton  
-Refer to Table 20-3. According to the table, what percent of families in Edgerton have income levels below $76,000?

Accepted Answer

A) 20 percent. 
B) 40 percent. 
C) 60 percent. 
D) 80 percent. 
A) 20 percent. 
B) 40 percent. 
C) 60 percent. 
D) 80 percent.

Question 11

Which of the following statements is correct?

Accepted Answer

A) A disadvantage of a minimum-wage law is that it may benefit unskilled workers who are not low-income workers. 
B) A disadvantage of a negative income tax program is that a poor person who chooses not to work many hours would receive a cash benefit. 
C) A disadvantage of an Earned Income Tax Credit (EIT
C)  is that a person who is unable to work due to a disability does not benefit from the program. 
D) All of the above are correct. 
A) A disadvantage of a minimum-wage law is that it may benefit unskilled workers who are not low-income workers. 
B) A disadvantage of a negative income tax program is that a poor person who chooses not to work many hours would receive a cash benefit. 
C) A disadvantage of an Earned Income Tax Credit (EIT
C)  is that a person who is unable to work due to a disability does not benefit from the program. 
D) All of the above are correct.

Question 12

Which group (or groups) would be the most upset by wide variation in the income distribution?

Accepted Answer

A) utilitarians 
B) utilitarians and liberals 
C) libertarians 
D) liberals and libertarians 
A) utilitarians 
B) utilitarians and liberals 
C) libertarians 
D) liberals and libertarians

Question 13

Table 20-4   Source: U.S. Bureau of Census
-Refer to Table 20-4. Comparing data from 2000 and 2011, which of the following statements is correct?

Accepted Answer

A) There has been no change in overall income inequality because the share of income held by the fourth fifth is nearly identical. 
B) Overall income inequality has worsened slightly, as shown by the simultaneous increase in the share of income held by the top fifth and the decrease in the share of income held by the bottom fifth. 
C) Overall income inequality has improved because the share held by the second fifth has declined by 0.5%. 
D) None of the above is correct. 
A) There has been no change in overall income inequality because the share of income held by the fourth fifth is nearly identical. 
B) Overall income inequality has worsened slightly, as shown by the simultaneous increase in the share of income held by the top fifth and the decrease in the share of income held by the bottom fifth. 
C) Overall income inequality has improved because the share held by the second fifth has declined by 0.5%. 
D) None of the above is correct.

Question 14

According to a utilitarian, total social utility will be maximized when marginal dollars are distributed to the people with the

Accepted Answer

A) lowest marginal utility of income. 
B) highest marginal utility of income. 
C) highest total utility from their income. 
D) most productive labor resources. 
A) lowest marginal utility of income. 
B) highest marginal utility of income. 
C) highest total utility from their income. 
D) most productive labor resources.

Question 15

Which of the following statements accurately characterizes the effects of minimum-wage laws?

Accepted Answer

A) Some workers who might have been employed at a lower wage become unemployed. 
B) Those workers who remain employed benefit from a higher wage. 
C) The effects of minimum-wage laws depend strongly on the elasticity of demand. 
D) All of the above accurately characterize the effects of minimum-wage laws. 
A) Some workers who might have been employed at a lower wage become unemployed. 
B) Those workers who remain employed benefit from a higher wage. 
C) The effects of minimum-wage laws depend strongly on the elasticity of demand. 
D) All of the above accurately characterize the effects of minimum-wage laws.

Question 16

In the United States, labor earnings are about what percent of total income?

Accepted Answer

A) 75 percent 
B) 70 percent 
C) 67 percent 
D) 50 percent 
A) 75 percent 
B) 70 percent 
C) 67 percent 
D) 50 percent

Question 17

Suppose that Family A borrows money when its car breaks down and saves money when the wife receives a holiday bonus from her employer. Suppose that Family B borrows money to buy elaborate birthday presents for the children and spends the husband's holiday bonus on a vacation to Florida. Which of the following is correct?

Accepted Answer

A) Both Family A's and Family B's spending habits suggest that they base their purchasing decisions on transitory income. 
B) Family A's spending habits suggest that it bases its purchasing decisions on transitory income rather than permanent income. Family B's spending habits suggest that it bases its purchasing decisions on permanent income rather than transitory income. 
C) Family A's spending habits suggest that it bases its purchasing decisions on permanent income rather than transitory income. Family B's spending habits suggest that it bases its purchasing decisions on transitory income rather than permanent income. 
D) Both Family A's and Family B's spending habits suggest that they base their purchasing decisions on permanent income. 
A) Both Family A's and Family B's spending habits suggest that they base their purchasing decisions on transitory income. 
B) Family A's spending habits suggest that it bases its purchasing decisions on transitory income rather than permanent income. Family B's spending habits suggest that it bases its purchasing decisions on permanent income rather than transitory income. 
C) Family A's spending habits suggest that it bases its purchasing decisions on permanent income rather than transitory income. Family B's spending habits suggest that it bases its purchasing decisions on transitory income rather than permanent income. 
D) Both Family A's and Family B's spending habits suggest that they base their purchasing decisions on permanent income.

Question 18

In general, which of the following would libertarians argue is more important than equal outcomes?

Accepted Answer

A) equal opportunities 
B) equal incomes 
C) providing a social safety net 
D) offering the opportunity to purchase social insurance 
A) equal opportunities 
B) equal incomes 
C) providing a social safety net 
D) offering the opportunity to purchase social insurance

Question 19

Scenario 20-5
Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability:
Taxes owed = (1/4 of income) - $10,000
-Refer to Scenario 20-5. A family earning $70,000 before taxes would have how much after-tax income?

Accepted Answer

A) $7,500 
B) $52,500 
C) $62,500 
D) $77,500 
A) $7,500 
B) $52,500 
C) $62,500 
D) $77,500

Question 20

Scenario 20-1
The government is proposing switching from a progressive tax system in which families pay 15% of the first $50,000 earned, 25% of the next $50,000 earned, and 35% of any income over $100,000 to a tax system in which every family pays 20% of their income less $20,000.
-Refer to Scenario 20-1. What would the libertarians think of the proposed policy change?

Accepted Answer

A) They would favor the current progressive policy over the proposed policy because it accounts for diminishing marginal utility. 
B) They would favor the proposed tax policy over the current progressive policy because it would result in a negative tax for the poorest families. 
C) They would favor the current progressive tax policy over the proposed policy because it rewards those who work the hardest. 
D) They would oppose both tax policies because both redistribute income. 
A) They would favor the current progressive policy over the proposed policy because it accounts for diminishing marginal utility. 
B) They would favor the proposed tax policy over the current progressive policy because it would result in a negative tax for the poorest families. 
C) They would favor the current progressive tax policy over the proposed policy because it rewards those who work the hardest. 
D) They would oppose both tax policies because both redistribute income.

Exam 20: Income Inequality and Poverty

The normal life cycle pattern of income

Which of the following statements is not correct?

The maximin criterion is the idea that the government should aim to maximize the well-being of the worst-off person in society.

A binding minimum wage

Which of the three political philosophies discussed in the textbook, if any, view the total income of society as a shared resource that a social planner can freely redistribute to achieve some social goal?

Suppose the government used the following formula to compute a family's tax liability: Taxes owed = 28% of income - $8,000. How much would a family have to earn to owe $0 in taxes?

A society consists of three individuals: Larry, Margaret, and Nina. In terms of income and utility, Larry is currently best-off, Margaret ranks in the middle, and Nina is worst-off. Which of the following statements is correct?

Which of the following statements is correct?

Medicaid and food stamps are

Table 20-3 The Distribution of Income in Edgerton -Refer to Table 20-3. According to the table, what percent of families in Edgerton have income levels below $76,000?

Which of the following statements is correct?

Which group (or groups) would be the most upset by wide variation in the income distribution?

Table 20-4 Source: U.S. Bureau of Census -Refer to Table 20-4. Comparing data from 2000 and 2011, which of the following statements is correct?

According to a utilitarian, total social utility will be maximized when marginal dollars are distributed to the people with the

Which of the following statements accurately characterizes the effects of minimum-wage laws?

In the United States, labor earnings are about what percent of total income?

In general, which of the following would libertarians argue is more important than equal outcomes?

Scenario 20-5 Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability: Taxes owed = (1/4 of income) - $10,000 -Refer to Scenario 20-5. A family earning $70,000 before taxes would have how much after-tax income?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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