Question 1

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 2

(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 3

Which of the following contributed most to the large increases in poverty since 1960?

Accepted Answer

A) increases in air pollution and other externalities 
B) federal government budget deficits 
C) the increase in the number of elderly individuals 
D) rising poverty rates among households headed by females 
E) the increase in the number of households headed by females 
A) increases in air pollution and other externalities 
B) federal government budget deficits 
C) the increase in the number of elderly individuals 
D) rising poverty rates among households headed by females 
E) the increase in the number of households headed by females

Question 4

How do the high implicit marginal tax rates that often occur when transfer payments are inversely linked to earnings affect the incentive of poor people to work and earn?

Accepted Answer

A) A poor person's incentive to earn is increased. 
B) A poor person's incentive to earn is reduced. 
C) The incentive of the poor to earn is unaffected. 
D) The incentive of the poor to earn reported income is increased,but the incentive to earn unreported income is reduced. 
A) A poor person's incentive to earn is increased. 
B) A poor person's incentive to earn is reduced. 
C) The incentive of the poor to earn is unaffected. 
D) The incentive of the poor to earn reported income is increased,but the incentive to earn unreported income is reduced.

Question 5

Even if lifetime incomes were equal,there still might be substantial inequality in annual income data because

Accepted Answer

A) wage rates might differ substantially. 
B) some might have inherited their wealth. 
C) some might have retired,whereas others are prime-age earners. 
D) educational levels might differ substantially. 
A) wage rates might differ substantially. 
B) some might have inherited their wealth. 
C) some might have retired,whereas others are prime-age earners. 
D) educational levels might differ substantially.

Question 6

Figure 15-4
  
-Figure 15-4 shows the Lorenz Curve for three countries,I,II,and III.Which of the following statements is true?

Accepted Answer

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

Question 7

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 8

Compared to low-income families,upper-income families are likely to

Accepted Answer

A) be larger in size. 
B) be headed by an adult of prime working age (between 35 years and 64 years). 
C) have more than one family member working. 
D) be all of the above. 
A) be larger in size. 
B) be headed by an adult of prime working age (between 35 years and 64 years). 
C) have more than one family member working. 
D) be all of the above.

Question 9

(I)In 2009,a family of four making $22,050 would be considered living in poverty.
(II)The poverty threshold level of income is adjusted for family size and for inflation (price level changes)through time.

Accepted Answer

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

Question 10

In a market economy,

Accepted Answer

A) there is not a fixed economic pie to be divided among individuals,but rather income is created by the individuals who earn it. 
B) differences in incomes provide individuals with an incentive to supply resources that are highly valued by others. 
C) a person's income is determined by the quantity and value of the resources that they supply to the market. 
D) all of the above are true. 
A) there is not a fixed economic pie to be divided among individuals,but rather income is created by the individuals who earn it. 
B) differences in incomes provide individuals with an incentive to supply resources that are highly valued by others. 
C) a person's income is determined by the quantity and value of the resources that they supply to the market. 
D) all of the above are true.

Question 11

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 12

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 13

Which of the following statements regarding poverty in the United States is correct?

Accepted Answer

A) There are as many poor African Americans as there are poor whites. 
B) The incidence of poverty is lower among females than among males. 
C) The incidence of poverty is higher among African Americans than among whites. 
D) Most of the poor people in the United States are elderly (over age 65). 
A) There are as many poor African Americans as there are poor whites. 
B) The incidence of poverty is lower among females than among males. 
C) The incidence of poverty is higher among African Americans than among whites. 
D) Most of the poor people in the United States are elderly (over age 65).

Question 14

Measuring poverty using an absolute income scale like the poverty line can be misleading because

Accepted Answer

A) income measures do not include the value of in-kind transfers. 
B) money is valued less highly by the poor than by the rich. 
C) the poor are not likely to participate in the labor market. 
D) income measures are adjusted for the effects of labor-market discrimination. 
A) income measures do not include the value of in-kind transfers. 
B) money is valued less highly by the poor than by the rich. 
C) the poor are not likely to participate in the labor market. 
D) income measures are adjusted for the effects of labor-market discrimination.

Question 15

Assume that Peter is a single parent who is in poverty.He receives food stamps and Medicaid.For every $100 that he earns,Peter loses $35 in food stamps and $20 in Medicaid benefits.Also,Peter's income is taxed at a rate of 10%.Then,Peter's total tax rate is

Accepted Answer

A) 45 percent 
B) 55 percent 
C) 65 percent 
D) 70 percent 
A) 45 percent 
B) 55 percent 
C) 65 percent 
D) 70 percent

Question 16

Data on the distribution of income among individuals and families in the United States indicate that

Accepted Answer

A) the power of labor unions and corporations is the major determinant of income inequality. 
B) the rich stay rich and the poor stay poor from one generation to another. 
C) much of the inequality in annual income emanates from differences in education,age,hours worked,and family size. 
D) the difference in annual income emanating from ownership of capital assets is the major source of economic inequality. 
A) the power of labor unions and corporations is the major determinant of income inequality. 
B) the rich stay rich and the poor stay poor from one generation to another. 
C) much of the inequality in annual income emanates from differences in education,age,hours worked,and family size. 
D) the difference in annual income emanating from ownership of capital assets is the major source of economic inequality.

Question 17

In a market economy,individuals have a strong incentive to develop their skills and provide others with resources,goods,and services that they value because these activities generally

Accepted Answer

A) improve the overall efficiency of the economy. 
B) increase aggregate output. 
C) lead to a higher personal income. 
D) provide additional tax revenue for the government. 
A) improve the overall efficiency of the economy. 
B) increase aggregate output. 
C) lead to a higher personal income. 
D) provide additional tax revenue for the government.

Question 18

(I)High implicit marginal tax rates reduce the incentive of the poor to earn.
(II)The Samaritan's dilemma is that transfer programs lower the opportunity cost of activities that lead to poverty.

Accepted Answer

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

Question 19

Transfers that are limited to persons or families with an income below a certain cut-off point are referred to as

Accepted Answer

A) means-tested income transfers. 
B) poverty transfers. 
C) Social Security transfers. 
D) cash income transfers. 
A) means-tested income transfers. 
B) poverty transfers. 
C) Social Security transfers. 
D) cash income transfers.

Question 20

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.

Exam 28: Income Inequality and Poverty

Which of the following is accurate regarding income statistics?

(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.

Which of the following contributed most to the large increases in poverty since 1960?

How do the high implicit marginal tax rates that often occur when transfer payments are inversely linked to earnings affect the incentive of poor people to work and earn?

Even if lifetime incomes were equal,there still might be substantial inequality in annual income data because

Figure 15-4 -Figure 15-4 shows the Lorenz Curve for three countries,I,II,and III.Which of the following statements is true?

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

Compared to low-income families,upper-income families are likely to

(I)In 2009,a family of four making $22,050 would be considered living in poverty. (II)The poverty threshold level of income is adjusted for family size and for inflation (price level changes)through time.

In a market economy,

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

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

Which of the following statements regarding poverty in the United States is correct?

Measuring poverty using an absolute income scale like the poverty line can be misleading because

Assume that Peter is a single parent who is in poverty.He receives food stamps and Medicaid.For every $100 that he earns,Peter loses $35 in food stamps and $20 in Medicaid benefits.Also,Peter's income is taxed at a rate of 10%.Then,Peter's total tax rate is

Data on the distribution of income among individuals and families in the United States indicate that

In a market economy,individuals have a strong incentive to develop their skills and provide others with resources,goods,and services that they value because these activities generally

(I)High implicit marginal tax rates reduce the incentive of the poor to earn. (II)The Samaritan's dilemma is that transfer programs lower the opportunity cost of activities that lead to poverty.

Transfers that are limited to persons or families with an income below a certain cut-off point are referred to as

If substantial income mobility is present,

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