Question 1

In the United States in 2003,the bottom fifth of the income distribution had incomes below $19,250.

Accepted Answer

A) True 
 B)False  False

Question 2

The poverty line is not adjusted for which of the following?

Accepted Answer

A) food stamps 
B) regional cost-of-living differences 
C) Earned Income Tax Credit 
D) All of the above are correct. 
A) food stamps 
B) regional cost-of-living differences 
C) Earned Income Tax Credit 
D) All of the above are correct. D

Question 3

As a result of the trade-off between income equality and incentives to work,an optimal redistribution policy

Accepted Answer

A) can never be funded through taxes on labor income. 
B) must always achieve a full egalitarian society. 
C) only benefits the middle class. 
D) always falls short of a fully egalitarian society. 
A) can never be funded through taxes on labor income. 
B) must always achieve a full egalitarian society. 
C) only benefits the middle class. 
D) always falls short of a fully egalitarian society. D

Question 4

Proponents of welfare reform claim that programs that do not establish a time limit on recipient benefits harm children by

Accepted Answer

A) forcing mothers to work outside the home. 
B) encouraging a psychological dependency on government programs. 
C) encouraging child abuse by absent fathers. 
D) All of the above are correct. 
A) forcing mothers to work outside the home. 
B) encouraging a psychological dependency on government programs. 
C) encouraging child abuse by absent fathers. 
D) All of the above are correct.

Question 5

The poverty line is based on the percentage of people who cannot afford an adequate diet.

Accepted Answer

A) True 
 B)False

Question 6

In the parable of the leaky bucket,a fundamental problem with government redistribution programs is identified.As long as the government only has "leaky buckets" at its disposal,

Accepted Answer

A) the costs of welfare programs will exceed the benefits. 
B) it should not try to reach complete equality in income. 
C) income equality will be the best policy option. 
D) equality of economic opportunity will reduce society's utility. 
A) the costs of welfare programs will exceed the benefits. 
B) it should not try to reach complete equality in income. 
C) income equality will be the best policy option. 
D) equality of economic opportunity will reduce society's utility.

Question 7

Economists who support minimum-wage legislation are likely to believe that the

Accepted Answer

A) demand for unskilled labor is relatively inelastic. 
B) demand for unskilled labor is relatively elastic. 
C) supply of unskilled labor is relatively elastic. 
D) supply of unskilled labor is relatively inelastic. 
A) demand for unskilled labor is relatively inelastic. 
B) demand for unskilled labor is relatively elastic. 
C) supply of unskilled labor is relatively elastic. 
D) supply of unskilled labor is relatively inelastic.

Question 8

The poverty rate is a measure of the percentage of people whose incomes fall below

Accepted Answer

A) an absolute level of income. 
B) the median income for a family of three. 
C) a relative level of income. 
D) the bottom 20 percent of the income distribution. 
A) an absolute level of income. 
B) the median income for a family of three. 
C) a relative level of income. 
D) the bottom 20 percent of the income distribution.

Question 9

Figure 20-2
Poverty Rates by Age
  
-Refer to Figure 20-2.In 1968,the percent of children under age 18 in poverty is

Accepted Answer

A) higher than both the percentage of adults aged 18 to 64 and the percentage of elderly aged 65 and over in poverty. 
B) higher than the percentage of adults aged 18 to 64 but is lower than the percentage of elderly aged 65 and over in poverty. 
C) lower than both the percentage of adults aged 18 to 64 and the percentage of elderly aged 65 and over in poverty. 
D) lower than the percentage of adults aged 18 to 64 but is higher than the percentage of elderly aged 65 and over in poverty. 
A) higher than both the percentage of adults aged 18 to 64 and the percentage of elderly aged 65 and over in poverty. 
B) higher than the percentage of adults aged 18 to 64 but is lower than the percentage of elderly aged 65 and over in poverty. 
C) lower than both the percentage of adults aged 18 to 64 and the percentage of elderly aged 65 and over in poverty. 
D) lower than the percentage of adults aged 18 to 64 but is higher than the percentage of elderly aged 65 and over in poverty.

Question 10

Libertarianism identifies a redistribution of income role for government when

Accepted Answer

A) individual incomes vary widely. 
B) the income distribution is altered by illegal means (e.g.theft). 
C) a social planner is needed to smooth out the transitory income stream. 
D) workers lose their jobs as a result of structural changes in the economy. 
A) individual incomes vary widely. 
B) the income distribution is altered by illegal means (e.g.theft). 
C) a social planner is needed to smooth out the transitory income stream. 
D) workers lose their jobs as a result of structural changes in the economy.

Question 11

Which of the following statements is not correct?

Accepted Answer

A) An advantage of an in-kind transfer is that it prevents an alcoholic from spending a cash benefit on alcohol. 
B) An advantage of the Supplemental Security Income (SSI) program is that it benefits the sick and disabled. 
C) An advantage of a negative income tax program is that it encourages the poor to work in order to be eligible. 
D) An advantage of a minimum wage law is that it benefits some unskilled workers. 
A) An advantage of an in-kind transfer is that it prevents an alcoholic from spending a cash benefit on alcohol. 
B) An advantage of the Supplemental Security Income (SSI) program is that it benefits the sick and disabled. 
C) An advantage of a negative income tax program is that it encourages the poor to work in order to be eligible. 
D) An advantage of a minimum wage law is that it benefits some unskilled workers.

Question 12

Table 20-2
Poverty Thresholds in 2002, by Size of Family and Number of Related Children Under 18 Years
[Dollars]
   
Source: U. S. Bureau of the Census, Current Population Survey.
-Refer to Table 20-2.What is the poverty line for a 75 year old individual?

Accepted Answer

A) $8,628 
B) $9,359 
C) $12,353 
D) $12,400 
A) $8,628 
B) $9,359 
C) $12,353 
D) $12,400

Question 13

Assume that the government proposes a negative income tax that calculates taxes owed by the following formula,
Taxes Owed = (1/3 × Income)- $10,000.
Compute the tax that would be owed given each level of income.
a.$120,000
b.$90,000
c.$60,000
d.$30,000
e.$0

Accepted Answer

a. $30,000
b. $20,000
c. $10,0

Question 14

Scenario 20-1
Suppose that a society is made up of five families whose incomes are as follows:
$120,000; $90,000; $30,000; $30,000; and $18,000.
The federal government is considering two potential income tax plans:
Plan A is a negative income tax plan where the taxes owed equal 1/3 of income minus $20,000.
Plan B is a two-tiered plan where the poverty line is $35,000; families earning over $35,000 pay 10% of their income in taxes, and families earning less than $35,000 pay no income tax.
-Refer to Scenario 20-1.Assuming that utility is directly proportional to the cash value of after-tax income,which government policy would an advocate of libertarianism prefer?

Accepted Answer

A) Plan A 
B) Plan B 
C) either Plan A or Plan B 
D) neither Plan A nor Plan B because any plan that forcibly redistributes income is against the philosophy 
A) Plan A 
B) Plan B 
C) either Plan A or Plan B 
D) neither Plan A nor Plan B because any plan that forcibly redistributes income is against the philosophy

Question 15

The poverty line is an absolute standard and is based on the cost of providing an adequate diet.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) opportunity 
B) income 
C) providing a social safety net 
D) assuring fair compensation for workers 
A) opportunity 
B) income 
C) providing a social safety net 
D) assuring fair compensation for workers

Question 17

When the government redistributes income to achieve greater equality,it

Accepted Answer

A) distorts incentives. 
B) improves allocative efficiency. 
C) focuses on illegal immigrants. 
D) relies on foreign aid to help balance the budget. 
A) distorts incentives. 
B) improves allocative efficiency. 
C) focuses on illegal immigrants. 
D) relies on foreign aid to help balance the budget.

Question 18

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 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 and Family B's spending habits suggest that they base their purchasing decisions on permanent income. 
A) Both Family A 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 and Family B's spending habits suggest that they base their purchasing decisions on permanent income.

Question 19

The movement of individuals among income classes is likely to be caused by

Accepted Answer

A) chance or luck. 
B) laziness. 
C) hard work. 
D) All of the above are correct. 
A) chance or luck. 
B) laziness. 
C) hard work. 
D) All of the above are correct.

Question 20

The income level below which families are said to be poor is known as the

Accepted Answer

A) income maintenance threshold. 
B) poverty line. 
C) bottom quintile of the income distribution. 
D) minimum wage. 
A) income maintenance threshold. 
B) poverty line. 
C) bottom quintile of the income distribution. 
D) minimum wage.

Exam 20: Income Inequality and Poverty

In the United States in 2003,the bottom fifth of the income distribution had incomes below $19,250.

The poverty line is not adjusted for which of the following?

As a result of the trade-off between income equality and incentives to work,an optimal redistribution policy

Proponents of welfare reform claim that programs that do not establish a time limit on recipient benefits harm children by

The poverty line is based on the percentage of people who cannot afford an adequate diet.

In the parable of the leaky bucket,a fundamental problem with government redistribution programs is identified.As long as the government only has "leaky buckets" at its disposal,

Economists who support minimum-wage legislation are likely to believe that the

The poverty rate is a measure of the percentage of people whose incomes fall below

Figure 20-2 Poverty Rates by Age -Refer to Figure 20-2.In 1968,the percent of children under age 18 in poverty is

Libertarianism identifies a redistribution of income role for government when

Which of the following statements is not correct?

Table 20-2 Poverty Thresholds in 2002, by Size of Family and Number of Related Children Under 18 Years [Dollars] Source: U. S. Bureau of the Census, Current Population Survey. -Refer to Table 20-2.What is the poverty line for a 75 year old individual?

Assume that the government proposes a negative income tax that calculates taxes owed by the following formula, Taxes Owed = (1/3 × Income)- $10,000. Compute the tax that would be owed given each level of income. a.$120,000 b.$90,000 c.$60,000 d.$30,000 e.$0

The poverty line is an absolute standard and is based on the cost of providing an adequate diet.

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

When the government redistributes income to achieve greater equality,it

The movement of individuals among income classes is likely to be caused by

The income level below which families are said to be poor is known as the

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: 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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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