Question 1

Which of the following is true concerning the distribution of income?

Accepted Answer

A)  Various measures of income inequality can be used to objectively determine the fairness of an income distribution. 
B)  When the political process is democratic, income transfer programs will redistribute income from the rich to the poor. 
C)  The fairness of an income distribution is a normative concept; it cannot be determined objectively by economic criteria. 
D)  Income inequality is the fairest method to allocate income. 
A)  Various measures of income inequality can be used to objectively determine the fairness of an income distribution. 
B)  When the political process is democratic, income transfer programs will redistribute income from the rich to the poor. 
C)  The fairness of an income distribution is a normative concept; it cannot be determined objectively by economic criteria. 
D)  Income inequality is the fairest method to allocate income.

Question 2

"There is considerable movement up and down the economic ladder. Relative income positions often change over time." This statement is

Accepted Answer

A)  true; at different points in time people tend to change position in the income distribution 
B)  only true for industrialized countries 
C)  false; people tend to stay in the same place within the income distribution 
D)  false; people tend to stay in the same quintile that their parents were in 
A)  true; at different points in time people tend to change position in the income distribution 
B)  only true for industrialized countries 
C)  false; people tend to stay in the same place within the income distribution 
D)  false; people tend to stay in the same quintile that their parents were in

Question 3

Use the following two statements to answer this question. (I) In a market system, resource prices both provide incentives for the efficient allocation of resources and determine income distribution.
(II) Income and wealth are neither created nor destroyed, they are just fixed-sized pies to be allocated among individuals.

Accepted Answer

A)  Both I and II are true. 
B)  Both I and II are false. 
C)  I is true; II is false. 
D)  I is false; II is true. 
A)  Both I and II are true. 
B)  Both I and II are false. 
C)  I is true; II is false. 
D)  I is false; II is true.

Question 4

When a person who receives welfare benefits earns income, those benefits are reduced as earned income rises. This is referred to as

Accepted Answer

A)  an implicit marginal tax. 
B)  the opportunity cost of income. 
C)  the work-leisure trade-off. 
D)  reverse discrimination. 
A)  an implicit marginal tax. 
B)  the opportunity cost of income. 
C)  the work-leisure trade-off. 
D)  reverse discrimination.

Question 5

In 2009, the proportion of all poverty-level families headed by a female was

Accepted Answer

A)  approximately one-fourth. 
B)  approximately one-third. 
C)  approximately half. 
D)  more than three-fourths. 
A)  approximately one-fourth. 
B)  approximately one-third. 
C)  approximately half. 
D)  more than three-fourths.

Question 6

Figure 15-3  
As shown in Figure 15-3, 20 percent of families earned a cumulative share of about ____ percent of income.

Accepted Answer

A)  5 
B)  10 
C)  30 
D)  50 
A)  5 
B)  10 
C)  30 
D)  50

Question 7

Figure 15-4  
Figure 15-4 shows the Lorenz Curve for three countries, I, II, and III. Of the three countries shown,

Accepted Answer

A)  country III has the most unequal income distribution. 
B)  country II has the most unequal income distribution. 
C)  country I has the most unequal income distribution. 
D)  country III has the most equal income distribution. 
E)  country II has a more equal income distribution than Country I. 
A)  country III has the most unequal income distribution. 
B)  country II has the most unequal income distribution. 
C)  country I has the most unequal income distribution. 
D)  country III has the most equal income distribution. 
E)  country II has a more equal income distribution than Country I.

Question 8

Compared to low-income families, a larger proportion of high-income families

Accepted Answer

A)  is headed by a person with a college degree. 
B)  has both a husband and a wife who work full time. 
C)  is headed by a person between the ages of 35 and 64. 
D)  is all of the above. 
A)  is headed by a person with a college degree. 
B)  has both a husband and a wife who work full time. 
C)  is headed by a person between the ages of 35 and 64. 
D)  is all of the above.

Question 9

Which one of the following groups has a below-average incidence of poverty?

Accepted Answer

A)  persons who are divorced or separated from their spouse 
B)  families headed by a female 
C)  persons 18 to 24 years of age 
D)  married-couple families 
A)  persons who are divorced or separated from their spouse 
B)  families headed by a female 
C)  persons 18 to 24 years of age 
D)  married-couple families

Question 10

(I) Positive economics cannot determine how much income inequality should be present in a country. (II) Critics of government action to reduce income inequality argue that modifying the market process of income determination may create perverse incentives and hurt wealth creation.

Accepted Answer

A)  Both I and II are true. 
B)  Both I and II are false. 
C)  I is true; II is false. 
D)  I is false; II is true. 
A)  Both I and II are true. 
B)  Both I and II are false. 
C)  I is true; II is false. 
D)  I is false; II is true.

Question 11

Why don't we divide the economic pie evenly so that each person receives the same income?

Accepted Answer

This question addresses the role of ince

Question 12

If substantial income mobility is present,

Accepted Answer

A)  there is considerable movement of individuals up and down the income ladder when income comparisons among the same individuals or households are made at different points in time. 
B)  annual income data are an accurate indicator of the long-term economic status of individuals and families. 
C)  the rich tend to stay rich and the poor tend to stay poor. 
D)  individuals and families move quite often among the geographic regions of a country but not among income groups. 
A)  there is considerable movement of individuals up and down the income ladder when income comparisons among the same individuals or households are made at different points in time. 
B)  annual income data are an accurate indicator of the long-term economic status of individuals and families. 
C)  the rich tend to stay rich and the poor tend to stay poor. 
D)  individuals and families move quite often among the geographic regions of a country but not among income groups.

Question 13

When determining whether an income places a family or individual in poverty, the official poverty rate excludes

Accepted Answer

A)  money income derived from sources other than labor. 
B)  money income received from transfer programs. 
C)  noncash benefits derived from programs supplying recipients with food, housing, and medical benefits. 
D)  noncash benefits that are provided the non-elderly, but it counts these benefits when they are supplied to the elderly. 
A)  money income derived from sources other than labor. 
B)  money income received from transfer programs. 
C)  noncash benefits derived from programs supplying recipients with food, housing, and medical benefits. 
D)  noncash benefits that are provided the non-elderly, but it counts these benefits when they are supplied to the elderly.

Question 14

Economic analysis indicates that

Accepted Answer

A)  unorganized groups of taxpayers and consumers will be better able to secure redistribution through the political process than well-organized interest groups. 
B)  rent-seeking activities are beneficial to a nation's prosperity because they alter public policy. 
C)  most income transfers in the United States are directed toward the poor. 
D)  market adjustments and competition for transfers will erode much of the gain of transfer recipients. 
A)  unorganized groups of taxpayers and consumers will be better able to secure redistribution through the political process than well-organized interest groups. 
B)  rent-seeking activities are beneficial to a nation's prosperity because they alter public policy. 
C)  most income transfers in the United States are directed toward the poor. 
D)  market adjustments and competition for transfers will erode much of the gain of transfer recipients.

Question 15

This year, Tammy earned $15,000 and she paid 15 percent in income and payroll taxes. She qualified for Medicaid and food stamps. For every $100 that she earns, Tammy loses $35 in Medicaid benefits and $15 in food stamps. Tammy faces an effective marginal tax rate of

Accepted Answer

A)  15 percent. 
B)  35 percent. 
C)  50 percent. 
D)  65 percent. 
A)  15 percent. 
B)  35 percent. 
C)  50 percent. 
D)  65 percent.

Question 16

A valid argument against redistributing income to achieve complete equality is that

Accepted Answer

A)  income equality would destroy the social cohesiveness that exists among different income groupings. 
B)  this would eliminate the monetary incentives to work and produce. 
C)  the cost of obtaining the equality would be so deflationary as to promote economic instability. 
D)  income equality would imply class segregation based on factors such as sex or race since income would be constant. 
A)  income equality would destroy the social cohesiveness that exists among different income groupings. 
B)  this would eliminate the monetary incentives to work and produce. 
C)  the cost of obtaining the equality would be so deflationary as to promote economic instability. 
D)  income equality would imply class segregation based on factors such as sex or race since income would be constant.

Question 17

Why not designate the poorest 10 percent of the population as the official measure of poverty?

Accepted Answer

This relative measure would imply that p

Question 18

Redistribution through the public sector tends to lower economic prosperity because

Accepted Answer

A)  it weakens the link between productive activity and the reward derived from it. 
B)  it encourages resources to flow into wasteful rent-seeking activities. 
C)  the higher tax rates required to finance redistribution result in resources being devoted toward tax avoidance activities. 
D)  all of the above are true. 
A)  it weakens the link between productive activity and the reward derived from it. 
B)  it encourages resources to flow into wasteful rent-seeking activities. 
C)  the higher tax rates required to finance redistribution result in resources being devoted toward tax avoidance activities. 
D)  all of the above are true.

Question 19

Which of the following is accurate regarding income statistics?

Accepted Answer

A)  Current annual income is also an accurate indicator of relative economic status over a longer period, such as a decade or lifetime. 
B)  Inequalities of income observed at one point in time with annual income data overstate the degree of true income inequality in lifetime income. 
C)  Recent studies indicate that the relative income position of a family generally determines the relative income position of their children and grandchildren. 
D)  High-income earners generally maintain their status year after year, whereas those with low current incomes tend to stay poor year after year. 
A)  Current annual income is also an accurate indicator of relative economic status over a longer period, such as a decade or lifetime. 
B)  Inequalities of income observed at one point in time with annual income data overstate the degree of true income inequality in lifetime income. 
C)  Recent studies indicate that the relative income position of a family generally determines the relative income position of their children and grandchildren. 
D)  High-income earners generally maintain their status year after year, whereas those with low current incomes tend to stay poor year after year.

Question 20

Assume that Jill is a single parent who is in poverty. She receives food stamps and Medicaid. For every $100 that she earns, Jill loses $20 of her food stamp benefits and $15 in her Medicaid benefits. Jill's implicit marginal tax rate from these two programs is

Accepted Answer

A)  20 percent. 
B)  30 percent. 
C)  35 percent. 
D)  45 percent. 
A)  20 percent. 
B)  30 percent. 
C)  35 percent. 
D)  45 percent.

Which of the following is true concerning the distribution of income?

"There is considerable movement up and down the economic ladder. Relative income positions often change over time." This statement is

When a person who receives welfare benefits earns income, those benefits are reduced as earned income rises. This is referred to as

In 2009, the proportion of all poverty-level families headed by a female was

Figure 15-3 As shown in Figure 15-3, 20 percent of families earned a cumulative share of about ____ percent of income.

Figure 15-4 Figure 15-4 shows the Lorenz Curve for three countries, I, II, and III. Of the three countries shown,

Compared to low-income families, a larger proportion of high-income families

Which one of the following groups has a below-average incidence of poverty?

(I) Positive economics cannot determine how much income inequality should be present in a country. (II) Critics of government action to reduce income inequality argue that modifying the market process of income determination may create perverse incentives and hurt wealth creation.

Why don't we divide the economic pie evenly so that each person receives the same income?

If substantial income mobility is present,

When determining whether an income places a family or individual in poverty, the official poverty rate excludes

Economic analysis indicates that

This year, Tammy earned $15,000 and she paid 15 percent in income and payroll taxes. She qualified for Medicaid and food stamps. For every $100 that she earns, Tammy loses $35 in Medicaid benefits and $15 in food stamps. Tammy faces an effective marginal tax rate of

A valid argument against redistributing income to achieve complete equality is that

Why not designate the poorest 10 percent of the population as the official measure of poverty?

Redistribution through the public sector tends to lower economic prosperity because

Which of the following is accurate regarding income statistics?

Assume that Jill is a single parent who is in poverty. She receives food stamps and Medicaid. For every $100 that she earns, Jill loses $20 of her food stamp benefits and $15 in her Medicaid benefits. Jill's implicit marginal tax rate from these two programs is

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

Which of the following is true concerning the distribution of income?

"There is considerable movement up and down the economic ladder. Relative income positions often change over time." This statement is

When a person who receives welfare benefits earns income, those benefits are reduced as earned income rises. This is referred to as

In 2009, the proportion of all poverty-level families headed by a female was

Figure 15-3 As shown in Figure 15-3, 20 percent of families earned a cumulative share of about ____ percent of income.

Figure 15-4 Figure 15-4 shows the Lorenz Curve for three countries, I, II, and III. Of the three countries shown,

Compared to low-income families, a larger proportion of high-income families

Which one of the following groups has a below-average incidence of poverty?

(I) Positive economics cannot determine how much income inequality should be present in a country. (II) Critics of government action to reduce income inequality argue that modifying the market process of income determination may create perverse incentives and hurt wealth creation.

Why don't we divide the economic pie evenly so that each person receives the same income?

If substantial income mobility is present,

When determining whether an income places a family or individual in poverty, the official poverty rate excludes

Economic analysis indicates that

This year, Tammy earned $15,000 and she paid 15 percent in income and payroll taxes. She qualified for Medicaid and food stamps. For every $100 that she earns, Tammy loses $35 in Medicaid benefits and $15 in food stamps. Tammy faces an effective marginal tax rate of

A valid argument against redistributing income to achieve complete equality is that

Why not designate the poorest 10 percent of the population as the official measure of poverty?

Redistribution through the public sector tends to lower economic prosperity because

Which of the following is accurate regarding income statistics?

Assume that Jill is a single parent who is in poverty. She receives food stamps and Medicaid. For every $100 that she earns, Jill loses $20 of her food stamp benefits and $15 in her Medicaid benefits. Jill's implicit marginal tax rate from these two programs is

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