Question 1

Some people inherit money and wealth that they did nothing to earn. Why don't we tax inheritance at 100 percent?

Accepted Answer

The people who create the wealth must de

Question 2

In a market economy,

Accepted Answer

A)  there is a fixed economic pie to be divided among individuals. 
B)  differences in incomes provide individuals with an incentive to supply resources that are highly valued by others. 
C)  a central distributing agency carves up the economic pie and allocates slices to individuals. 
D)  both a and b above are true. 
A)  there is a fixed economic pie to be divided among individuals. 
B)  differences in incomes provide individuals with an incentive to supply resources that are highly valued by others. 
C)  a central distributing agency carves up the economic pie and allocates slices to individuals. 
D)  both a and b above are true.

Question 3

According to the official measure of poverty, in 2009 the poverty rate of families in the United States was

Accepted Answer

A)  4.2 percent. 
B)  11.1 percent. 
C)  18.5 percent. 
D)  22 percent 
A)  4.2 percent. 
B)  11.1 percent. 
C)  18.5 percent. 
D)  22 percent

Question 4

If a family earned $10,000 and, as a consequence, sustained a reduction of $4,000 in government benefits, the family's implicit marginal tax rate would be

Accepted Answer

A)  10 percent. 
B)  40 percent. 
C)  60 percent. 
D)  75 percent. 
A)  10 percent. 
B)  40 percent. 
C)  60 percent. 
D)  75 percent.

Question 5

Which of the following groups are overrepresented among those with low incomes?

Accepted Answer

A)  youthful inexperienced workers 
B)  college students working on graduate degrees 
C)  single-parent families 
D)  all of the above 
A)  youthful inexperienced workers 
B)  college students working on graduate degrees 
C)  single-parent families 
D)  all of the above

Question 6

In the United States the degree of individual income mobility (that is, the degree to which people move from higher to lower or lower to higher income groupings) is

Accepted Answer

A)  rigid in both directions. 
B)  flexible in both directions. 
C)  flexible upward but rigid downward since high income perpetuates itself from generation to generation. 
D)  flexible downward but rigid upward since most low-income people never rise significantly above the poverty level. 
A)  rigid in both directions. 
B)  flexible in both directions. 
C)  flexible upward but rigid downward since high income perpetuates itself from generation to generation. 
D)  flexible downward but rigid upward since most low-income people never rise significantly above the poverty level.

Question 7

Which of the following would cause the poverty threshold income level for a given family to increase by 20 percent from one year to another?

Accepted Answer

A)  a 20 percent increase in the family's income 
B)  a 20 percent decrease in the family's income 
C)  a 20 percent increase in the general level of prices 
D)  a 20 percent increase in real national income 
A)  a 20 percent increase in the family's income 
B)  a 20 percent decrease in the family's income 
C)  a 20 percent increase in the general level of prices 
D)  a 20 percent increase in real national income

Question 8

Figure 15-2  
According to the Lorenz curve shown in Figure 15-2, what percentage of total income is earned by the richest 20 percent of families?

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 9

Figure 15-3  
As shown in Figure 15-3, 40 percent of families earned a cumulative share of about ____ percent of income.

Accepted Answer

A)  5 
B)  15 
C)  30 
D)  50 
A)  5 
B)  15 
C)  30 
D)  50

Question 10

Which of the following is true?

Accepted Answer

A)  The size of the economic pie to be divided among a country's residents is fixed. 
B)  Government tax and transfer programs have exerted a strong equalizing impact on the distribution of income in the United States. 
C)  The method of allocating income is relevant to the issue of fairness as well as the pattern of income distribution. 
D)  The optimal distribution of income can be determined by objective economic criteria. 
A)  The size of the economic pie to be divided among a country's residents is fixed. 
B)  Government tax and transfer programs have exerted a strong equalizing impact on the distribution of income in the United States. 
C)  The method of allocating income is relevant to the issue of fairness as well as the pattern of income distribution. 
D)  The optimal distribution of income can be determined by objective economic criteria.

Question 11

When there is only a weak link between work effort and reward

Accepted Answer

A)  individuals will undertake fewer projects that create income. 
B)  taxing the rich and distributing the money to the poor becomes the best way to increase the size of the economic pie. 
C)  corporations will profit more. 
D)  individuals have a strong incentive to undertake projects that generate income. 
A)  individuals will undertake fewer projects that create income. 
B)  taxing the rich and distributing the money to the poor becomes the best way to increase the size of the economic pie. 
C)  corporations will profit more. 
D)  individuals have a strong incentive to undertake projects that generate income.

Question 12

Which of the following is true of the tax and transfer programs of the United States?

Accepted Answer

A)  Tax-transfer programs persistently redistribute income from the rich to the poor. 
B)  Social Security, the largest transfer program, redirects income toward the elderly, a group with above-average levels of both income and wealth. 
C)  The bulk of agriculture subsidies go to large farmers with above-average incomes. 
D)  Taxes generally take a larger share of the income of the poor than is true for those with higher incomes. 
E)  Both b and c are true. 
A)  Tax-transfer programs persistently redistribute income from the rich to the poor. 
B)  Social Security, the largest transfer program, redirects income toward the elderly, a group with above-average levels of both income and wealth. 
C)  The bulk of agriculture subsidies go to large farmers with above-average incomes. 
D)  Taxes generally take a larger share of the income of the poor than is true for those with higher incomes. 
E)  Both b and c are true.

Question 13

Poor people, who receive income assistance from the government, often do not work because

Accepted Answer

A)  they face very high implicit marginal tax rates. 
B)  they are usually not physically able to work. 
C)  they have no desire for additional money. 
D)  the government forces them to stay at home and take care of their children. 
A)  they face very high implicit marginal tax rates. 
B)  they are usually not physically able to work. 
C)  they have no desire for additional money. 
D)  the government forces them to stay at home and take care of their children.

Question 14

Imagine two cities, Engelgrad and Legreeville, where the rich, middle, and poor income recipients in one city have annual incomes identical to their counterparts' incomes in the other city. In Engelgrad, the poorest families one year almost always end up as the richest families the next year and become middle-income families the year after that. In Legreeville, however, the poor remain poor and the rich remain rich. Which of the following is true about the two cities?

Accepted Answer

A)  Annual data on the distribution of income will indicate that the degree of income inequality in the two cities is identical. 
B)  The degree of lifetime income inequality in the two cities is identical. 
C)  The income mobility of people in the two cities is identical. 
D)  The distribution of annual income is more unequal in Legreeville. 
A)  Annual data on the distribution of income will indicate that the degree of income inequality in the two cities is identical. 
B)  The degree of lifetime income inequality in the two cities is identical. 
C)  The income mobility of people in the two cities is identical. 
D)  The distribution of annual income is more unequal in Legreeville.

Question 15

Income inequality exists in the United States. Is this necessarily a bad thing? Explain how our assessment of income inequality depends crucially on the source of that inequality.

Accepted Answer

In a market economy, the distribution of

Question 16

Which of the following is false about data on the inequality of annual family (or household) incomes?

Accepted Answer

A)  The degree of inequality is reduced when transfers and taxes are considered. 
B)  The inequality in annual income data understates the true degree of inequality in lifetime income. 
C)  Differences in age and family characteristics contribute to the degree of inequality. 
D)  The inequality in consumption spending across households is smaller than the inequality in annual income. 
A)  The degree of inequality is reduced when transfers and taxes are considered. 
B)  The inequality in annual income data understates the true degree of inequality in lifetime income. 
C)  Differences in age and family characteristics contribute to the degree of inequality. 
D)  The inequality in consumption spending across households is smaller than the inequality in annual income.

Question 17

As the War on Poverty programs were instituted and transfer payments expanded in the last half of the 1960s, what happened to the poverty rate?

Accepted Answer

A)  After rising for several decades, the official poverty rate has been declining since 1968. 
B)  After falling for several decades, the official poverty rate leveled off in the 1970s, and it has been relatively stable since that time. 
C)  The poverty rate declined prior to the War on Poverty period, and it has continued to decline. 
D)  The poverty rate rose prior to the War on Poverty period and has continued to rise. 
A)  After rising for several decades, the official poverty rate has been declining since 1968. 
B)  After falling for several decades, the official poverty rate leveled off in the 1970s, and it has been relatively stable since that time. 
C)  The poverty rate declined prior to the War on Poverty period, and it has continued to decline. 
D)  The poverty rate rose prior to the War on Poverty period and has continued to rise.

Question 18

Why have the earnings of persons with less education (and skill) fallen relative to those with more education (and skill)?

Accepted Answer

A)  more regulation of the transport industry 
B)  more powerful unions 
C)  international competition 
D)  all of the above 
A)  more regulation of the transport industry 
B)  more powerful unions 
C)  international competition 
D)  all of the above

Question 19

Figure 15-3  
As shown in Figure 15-3, the perfect equality line is drawn between points

Accepted Answer

A)  W and Y along the curve. 
B)  X and Z. 
C)  W and Y along the straight line. 
D)  W and X. 
A)  W and Y along the curve. 
B)  X and Z. 
C)  W and Y along the straight line. 
D)  W and X.

Question 20

Income is created when

Accepted Answer

A)  individuals supply others with productive resources that they value. 
B)  the government levies taxes on some and transfers the revenues to others. 
C)  the general level of prices increases. 
D)  shares of stock are sold from their current owner to another party. 
A)  individuals supply others with productive resources that they value. 
B)  the government levies taxes on some and transfers the revenues to others. 
C)  the general level of prices increases. 
D)  shares of stock are sold from their current owner to another party.

Some people inherit money and wealth that they did nothing to earn. Why don't we tax inheritance at 100 percent?

In a market economy,

According to the official measure of poverty, in 2009 the poverty rate of families in the United States was

If a family earned $10,000 and, as a consequence, sustained a reduction of $4,000 in government benefits, the family's implicit marginal tax rate would be

Which of the following groups are overrepresented among those with low incomes?

In the United States the degree of individual income mobility (that is, the degree to which people move from higher to lower or lower to higher income groupings) is

Which of the following would cause the poverty threshold income level for a given family to increase by 20 percent from one year to another?

Figure 15-2 According to the Lorenz curve shown in Figure 15-2, what percentage of total income is earned by the richest 20 percent of families?

Figure 15-3 As shown in Figure 15-3, 40 percent of families earned a cumulative share of about ____ percent of income.

Which of the following is true?

When there is only a weak link between work effort and reward

Which of the following is true of the tax and transfer programs of the United States?

Poor people, who receive income assistance from the government, often do not work because

Income inequality exists in the United States. Is this necessarily a bad thing? Explain how our assessment of income inequality depends crucially on the source of that inequality.

Which of the following is false about data on the inequality of annual family (or household) incomes?

As the War on Poverty programs were instituted and transfer payments expanded in the last half of the 1960s, what happened to the poverty rate?

Why have the earnings of persons with less education (and skill) fallen relative to those with more education (and skill)?

Figure 15-3 As shown in Figure 15-3, the perfect equality line is drawn between points

Income is created when

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Applying the Basics: Special Topics in Economics

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Exam 15: Income Inequality and Poverty

Some people inherit money and wealth that they did nothing to earn. Why don't we tax inheritance at 100 percent?

In a market economy,

According to the official measure of poverty, in 2009 the poverty rate of families in the United States was

If a family earned $10,000 and, as a consequence, sustained a reduction of $4,000 in government benefits, the family's implicit marginal tax rate would be

Which of the following groups are overrepresented among those with low incomes?

In the United States the degree of individual income mobility (that is, the degree to which people move from higher to lower or lower to higher income groupings) is

Which of the following would cause the poverty threshold income level for a given family to increase by 20 percent from one year to another?

Figure 15-2 According to the Lorenz curve shown in Figure 15-2, what percentage of total income is earned by the richest 20 percent of families?

Figure 15-3 As shown in Figure 15-3, 40 percent of families earned a cumulative share of about ____ percent of income.

Which of the following is true?

When there is only a weak link between work effort and reward

Which of the following is true of the tax and transfer programs of the United States?

Poor people, who receive income assistance from the government, often do not work because

Income inequality exists in the United States. Is this necessarily a bad thing? Explain how our assessment of income inequality depends crucially on the source of that inequality.

Which of the following is false about data on the inequality of annual family (or household) incomes?

As the War on Poverty programs were instituted and transfer payments expanded in the last half of the 1960s, what happened to the poverty rate?

Why have the earnings of persons with less education (and skill) fallen relative to those with more education (and skill)?

Figure 15-3 As shown in Figure 15-3, the perfect equality line is drawn between points

Income is created when

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Applying the Basics: Special Topics in Economics

Filters