Exam 15: Income Inequality and 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.

The level of money income below which a family is considered poor is called the

(I) Opponents to government action to reduce income inequality argue that the pattern of economic outcomes is more important than the process that generates the outcomes. (II) Opponents of government action to reduce income inequality argue that the proposed solutions will retard economic growth.

Which of the following is not counted as income when the official poverty rate is calculated?

The official poverty rate of elderly families

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

Since 1980, income inequality (as measured by the income share of the highest 20 percent of income earners relative to the lowest 20 percent) has

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?

The mythical country of Quitar has just established a policy to give very generous in-kind benefits to the nation's poor, currently defined as those earning less than $10,000 a year. Several years later, the poverty rate has not fallen. Why not?

In a market economy,

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.

"Annual income during the prime working years may overstate the economic well-being of most households over their lifetime." This statement is

Which of the following is true?

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

(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.

Income is created when

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?

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

Figure 15-2 -If this economy's distribution of income becomes more equal, then the Lorenz curve shown in Figure 15-2 will

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.