Question 1

Why does the census data overstate inequality?

Accepted Answer

A) They overestimate the non cash transfers received by the people from the government. 
B) They take into account the after-tax incomes. 
C) They take into account the gifts and transfer receipts from friends and relatives staying abroad. 
D) They do not consider the in-kind transfers received by the people from the government. 
E) They overestimate the medical benefits received by the people from the government. 
A) They overestimate the non cash transfers received by the people from the government. 
B) They take into account the after-tax incomes. 
C) They take into account the gifts and transfer receipts from friends and relatives staying abroad. 
D) They do not consider the in-kind transfers received by the people from the government. 
E) They overestimate the medical benefits received by the people from the government.

Question 2

Individuals have a tradeoff between leisure and work.When income from working is taxed,the cost of leisure is reduced in relative terms.

Accepted Answer

A) True 
 B)False

Question 3

The incentives created by foreign aid are analogous to the incentives created by the welfare systems and so might not be conducive to economic growth.

Accepted Answer

A) True 
 B)False

Question 4

Identify the correct statement.

Accepted Answer

A) The break-even income is directly related to the negative income tax. 
B) The break-even income is inversely related to the income floor. 
C) The break-even income is inversely related to the negative income tax. 
D) The break-even income is less than the guaranteed income. 
E) The break-even income is always equal to the guaranteed income. 
A) The break-even income is directly related to the negative income tax. 
B) The break-even income is inversely related to the income floor. 
C) The break-even income is inversely related to the negative income tax. 
D) The break-even income is less than the guaranteed income. 
E) The break-even income is always equal to the guaranteed income.

Question 5

The table below shows the monthly income of a family and the fuel assistance received from the government. Table 19.4
 
- Refer to Table 19.4.The greatest disincentive to work for this family occurs between the income levels of _____ and _____.

Accepted Answer

A) $0; $100 
B) $100; $200 
C) $400; $500 
D) $200; $300 
E) $300; $400 
A) $0; $100 
B) $100; $200 
C) $400; $500 
D) $200; $300 
E) $300; $400

Question 6

Which of the following tax structures creates a disincentive to earn more?

Accepted Answer

A) Proportional tax structure 
B) Regressive tax structure 
C) Digressive tax structure 
D) Progressive tax structure 
E) A combination of proportional and regressive tax structure 
A) Proportional tax structure 
B) Regressive tax structure 
C) Digressive tax structure 
D) Progressive tax structure 
E) A combination of proportional and regressive tax structure

Question 7

The "Robin Hood" tax policy,which taxes the rich to give to the poor,is best described by economists as:

Accepted Answer

A) a proportional tax policy. 
B) a regressive tax policy. 
C) a poll tax policy. 
D) a progressive tax policy. 
E) a capital tax policy. 
A) a proportional tax policy. 
B) a regressive tax policy. 
C) a poll tax policy. 
D) a progressive tax policy. 
E) a capital tax policy.

Question 8

Markets can function efficiently only when the private property rights are completely suspended and every resource in the economy is a commonly owned resource.

Accepted Answer

A) True 
 B)False

Question 9

The figure below shows two Lorenz curves,Y and Z. Figure 19.1   
-According to Figure 19.1,which of the following is true?

Accepted Answer

A) Line OXB is the line of perfect income inequality. 
B) Curve OYB represents a less equal distribution of income than curve OZB. 
C) Line AB represents a society in which wealth is shared equally among individuals. 
D) Line OXB is the line of perfect income equality. 
E) Line AB represents a society in which 50 percent of the population receives all the income. 
A) Line OXB is the line of perfect income inequality. 
B) Curve OYB represents a less equal distribution of income than curve OZB. 
C) Line AB represents a society in which wealth is shared equally among individuals. 
D) Line OXB is the line of perfect income equality. 
E) Line AB represents a society in which 50 percent of the population receives all the income.

Question 10

The official poverty-line income is adjusted annually for _____.

Accepted Answer

A) income taxes 
B) unemployment compensation benefits 
C) house rents 
D) inflation 
E) increases in health-care costs 
A) income taxes 
B) unemployment compensation benefits 
C) house rents 
D) inflation 
E) increases in health-care costs

Question 11

A negative income tax system transfers increasing amounts of income to households earning incomes below some specified level as their income declines.

Accepted Answer

A) True 
 B)False

Question 12

The income variation across the countries is the result of differential rates of economic growth being experienced by them.

Accepted Answer

A) True 
 B)False

Question 13

The table below shows the monthly income of a family and the fuel assistance received from the government. Table 19.4
  
-Refer to Table 19.4.If the family's monthly income rises from $300 to $400,the marginal penalty on working (in terms of reduced fuel assistance) is:

Accepted Answer

A) $80 
B) $40 
C) $50 
D) $90 
E) $100 
A) $80 
B) $40 
C) $50 
D) $90 
E) $100

Question 14

The figure given below shows the Lorenz curves of two countries (Country A and Country B). Figure 19.2
Total income (cumulative percentage)   Total population (cumuative percentage)
-In Figure 19.2,the richest 20 percent of the population in Country B receive:

Accepted Answer

A) 20 percent of the national income. 
B) 60 percent of the national income. 
C) 50 percent of the national income. 
D) 40 percent of the national income. 
E) 80 percent of the national income. 
A) 20 percent of the national income. 
B) 60 percent of the national income. 
C) 50 percent of the national income. 
D) 40 percent of the national income. 
E) 80 percent of the national income.

Question 15

In a progressive tax structure:

Accepted Answer

A) both the tax rate and absolute tax amount increases with increase in income. 
B) the tax rate remains constant,but the absolute tax amount increases with increase in income. 
C) both the tax rate and absolute tax amount declines with increase in income. 
D) the tax rate falls,but the absolute tax amount increases with increase in income. 
E) the tax rate increases,but the absolute tax amount decreases with increase in income. 
A) both the tax rate and absolute tax amount increases with increase in income. 
B) the tax rate remains constant,but the absolute tax amount increases with increase in income. 
C) both the tax rate and absolute tax amount declines with increase in income. 
D) the tax rate falls,but the absolute tax amount increases with increase in income. 
E) the tax rate increases,but the absolute tax amount decreases with increase in income.

Question 16

Empirical observations validate that the Gini co-efficient for the U.S.economy was between 0.35 and 0.37 until the 1990s,after which it has increased and reached 0.469.Which of the following can be inferred from this?

Accepted Answer

A) The distribution of national income in the U.S.has become slightly more equal since the 1990s. 
B) The government spending on poverty alleviation has increased since 1990. 
C) More jobs have been created in the U.S.since 1990. 
D) The distribution of national income in the U.S.has become slightly more unequal since the 1990s. 
E) The government has replaced the existing regressive tax structure with a progressive tax structure. 
A) The distribution of national income in the U.S.has become slightly more equal since the 1990s. 
B) The government spending on poverty alleviation has increased since 1990. 
C) More jobs have been created in the U.S.since 1990. 
D) The distribution of national income in the U.S.has become slightly more unequal since the 1990s. 
E) The government has replaced the existing regressive tax structure with a progressive tax structure.

Question 17

The size of a family or household does not affect the data used to measure income inequality.

Accepted Answer

A) True 
 B)False

Question 18

If the income floor is set at $6,000 and the negative income tax rate is 20 percent,a family which earns nothing will have a total income (including the income tax transfer) of _____.

Accepted Answer

A) $1,500 
B) $7,500 
C) $4,500 
D) $6,000 
E) $1,200 
A) $1,500 
B) $7,500 
C) $4,500 
D) $6,000 
E) $1,200

Question 19

Foreign aid should be given to all poor countries without considering if the aid reaches the poor and the needy.

Accepted Answer

A) True 
 B)False

Question 20

The table given below shows the annual incomes of a family of four and the corresponding transfer incomes. Table 19.3
 
- Refer to Table 19.3.What is the guaranteed income floor?

Accepted Answer

A) $20,000 
B) $7,000 
C) $1,000 
D) $5,000 
E) $8,750 
A) $20,000 
B) $7,000 
C) $1,000 
D) $5,000 
E) $8,750

Exam 19: Income Distribution,Poverty and Government Policy

Why does the census data overstate inequality?

Individuals have a tradeoff between leisure and work.When income from working is taxed,the cost of leisure is reduced in relative terms.

The incentives created by foreign aid are analogous to the incentives created by the welfare systems and so might not be conducive to economic growth.

Identify the correct statement.

The table below shows the monthly income of a family and the fuel assistance received from the government. Table 19.4 - Refer to Table 19.4.The greatest disincentive to work for this family occurs between the income levels of _____ and _____.

Which of the following tax structures creates a disincentive to earn more?

The "Robin Hood" tax policy,which taxes the rich to give to the poor,is best described by economists as:

Markets can function efficiently only when the private property rights are completely suspended and every resource in the economy is a commonly owned resource.

The figure below shows two Lorenz curves,Y and Z. Figure 19.1 -According to Figure 19.1,which of the following is true?

The official poverty-line income is adjusted annually for _____.

A negative income tax system transfers increasing amounts of income to households earning incomes below some specified level as their income declines.

The income variation across the countries is the result of differential rates of economic growth being experienced by them.

The table below shows the monthly income of a family and the fuel assistance received from the government. Table 19.4 -Refer to Table 19.4.If the family's monthly income rises from $300 to $400,the marginal penalty on working (in terms of reduced fuel assistance) is:

The figure given below shows the Lorenz curves of two countries (Country A and Country B). Figure 19.2 Total income (cumulative percentage) Total population (cumuative percentage) -In Figure 19.2,the richest 20 percent of the population in Country B receive:

In a progressive tax structure:

Empirical observations validate that the Gini co-efficient for the U.S.economy was between 0.35 and 0.37 until the 1990s,after which it has increased and reached 0.469.Which of the following can be inferred from this?

The size of a family or household does not affect the data used to measure income inequality.

If the income floor is set at $6,000 and the negative income tax rate is 20 percent,a family which earns nothing will have a total income (including the income tax transfer) of _____.

Foreign aid should be given to all poor countries without considering if the aid reaches the poor and the needy.

The table given below shows the annual incomes of a family of four and the corresponding transfer incomes. Table 19.3 - Refer to Table 19.3.What is the guaranteed income floor?

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

The table below shows the monthly income of a family and the fuel assistance received from the government. Table 19.4 - Refer to Table 19.4.The greatest disincentive to work for this family occurs between the income levels of _ and _.