Question 1

Which group would be the least upset by wide variation in the income distribution?

Accepted Answer

A)  Utilitarians. 
B)  Liberals. 
C)  Libertarians. 
D)  Each group would be equally upset. 
A)  Utilitarians. 
B)  Liberals. 
C)  Libertarians. 
D)  Each group would be equally upset.

Question 2

Figure 20-2
Poverty Rates by Age  
-Refer to Figure 20-2.In 1968,the percent of adults aged 18 to 64 years in poverty is

Accepted Answer

A)  higher than both the percentage of children under age 18 and the percentage of elderly aged 65 and over in poverty. 
B)  higher than the percentage of children under age 18 but is lower than the percentage of elderly aged 65 and over in poverty. 
C)  is lower than both the percentage of children under age 18 and the percentage of elderly aged 65 and over in poverty. 
D)  is lower than the percentage of children under age 18 but is higher than the percentage of elderly aged 65 and over in poverty. 
A)  higher than both the percentage of children under age 18 and the percentage of elderly aged 65 and over in poverty. 
B)  higher than the percentage of children under age 18 but is lower than the percentage of elderly aged 65 and over in poverty. 
C)  is lower than both the percentage of children under age 18 and the percentage of elderly aged 65 and over in poverty. 
D)  is lower than the percentage of children under age 18 but is higher than the percentage of elderly aged 65 and over in poverty.

Question 3

Suppose that income is subject to constant marginal utility.From a utilitarian perspective,

Accepted Answer

A)  some income redistribution from rich to poor would increase social welfare. 
B)  some income redistribution from poor to rich would increase social welfare. 
C)  any income redistribution would probably reduce social welfare. 
D)  any income redistribution would probably increase social welfare. 
A)  some income redistribution from rich to poor would increase social welfare. 
B)  some income redistribution from poor to rich would increase social welfare. 
C)  any income redistribution would probably reduce social welfare. 
D)  any income redistribution would probably increase social welfare.

Question 4

On average,the distribution of income tends to be

Accepted Answer

A)  random across richer and poorer countries. 
B)  similar between richer and poorer countries. 
C)  less equal in richer countries than in poorer countries. 
D)  more equal in richer countries than in poorer countries. 
A)  random across richer and poorer countries. 
B)  similar between richer and poorer countries. 
C)  less equal in richer countries than in poorer countries. 
D)  more equal in richer countries than in poorer countries.

Question 5

"The government should choose policies to maximize the total utility of society." This statement is most closely associated with which political philosophy?

Accepted Answer

A)  Liberalism. 
B)  Utilitarianism. 
C)  Libertarianism. 
D)  Welfarism. 
A)  Liberalism. 
B)  Utilitarianism. 
C)  Libertarianism. 
D)  Welfarism.

Question 6

When we examine historical data on income inequality in the U.S. ,we see that the distribution of income gradually became

Accepted Answer

A)  more equal between 1935 and 2005. 
B)  more equal between 1935 and 1973,but that trend reversed itself between 1973 and 2005. 
C)  more unequal between 1935 and 1973,but that trend reversed itself between 1973 and 2005. 
D)  more unequal between 1935 and 2005. 
A)  more equal between 1935 and 2005. 
B)  more equal between 1935 and 1973,but that trend reversed itself between 1973 and 2005. 
C)  more unequal between 1935 and 1973,but that trend reversed itself between 1973 and 2005. 
D)  more unequal between 1935 and 2005.

Question 7

Would the maximin criterion achieve perfect income equality?

Accepted Answer

A)  Yes.There would be no way to reallocate resources to raise the utility of the poor. 
B)  Yes.The maximin criterion would eliminate poverty. 
C)  No.It is impossible for complete equality to benefit the worst-off people in society. 
D)  No.Complete equality would reduce incentives to work,which would reduce total income,which would reduce the incomes of the worst-off people in society. 
A)  Yes.There would be no way to reallocate resources to raise the utility of the poor. 
B)  Yes.The maximin criterion would eliminate poverty. 
C)  No.It is impossible for complete equality to benefit the worst-off people in society. 
D)  No.Complete equality would reduce incentives to work,which would reduce total income,which would reduce the incomes of the worst-off people in society.

Question 8

Diminishing marginal utility suggests that

Accepted Answer

A)  more is always preferred to less. 
B)  the well-being of society is maximized when the distribution of income is equal. 
C)  the poor are less efficient at spending money than the rich. 
D)  the poor receive more satisfaction from the last dollar spent than the rich. 
A)  more is always preferred to less. 
B)  the well-being of society is maximized when the distribution of income is equal. 
C)  the poor are less efficient at spending money than the rich. 
D)  the poor receive more satisfaction from the last dollar spent than the rich.

Question 9

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 10

The study by economists Cox and Alm found

Accepted Answer

A)  the gap between rich and poor shrinks greatly if using after-tax income compared with pre-tax income. 
B)  the gap between rich and poor shrinks slightly if using after-tax income compared with pre-tax income. 
C)  the gap between rich and poor widens slightly if using after-tax income compared with pre-tax income. 
D)  the gap between rich and poor widens greatly if using after-tax income compared with pre-tax income. 
A)  the gap between rich and poor shrinks greatly if using after-tax income compared with pre-tax income. 
B)  the gap between rich and poor shrinks slightly if using after-tax income compared with pre-tax income. 
C)  the gap between rich and poor widens slightly if using after-tax income compared with pre-tax income. 
D)  the gap between rich and poor widens greatly if using after-tax income compared with pre-tax income.

Question 11

Temporary Assistance for Needy Families (TANF)is an example of a negative income tax program.

Accepted Answer

A) True 
 B)False

Question 12

Raising the welfare of the worst-off person in society is an important goal of which political philosophy?

Accepted Answer

A)  Utilitarianism. 
B)  Liberalism. 
C)  Libertarianism. 
D)  Secularism. 
A)  Utilitarianism. 
B)  Liberalism. 
C)  Libertarianism. 
D)  Secularism.

Question 13

The life cycle effect characterizes a lifetime income profile in which income

Accepted Answer

A)  tends to follow a seasonal pattern. 
B)  rises as a worker gains maturity and experience. 
C)  rises and falls in conjunction with the business cycle. 
D)  falls during the early years of market activity and peaks at retirement. 
A)  tends to follow a seasonal pattern. 
B)  rises as a worker gains maturity and experience. 
C)  rises and falls in conjunction with the business cycle. 
D)  falls during the early years of market activity and peaks at retirement.

Question 14

In the United States in 2005,the bottom fifth of the income distribution had incomes below $19,250.

Accepted Answer

A) True 
 B)False

Question 15

The utilitarian justification for redistributing income is based on the assumption of diminishing marginal utility.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following represents a problem in measuring inequality?

Accepted Answer

A)  Measurements of income distributions typically include in-kind transfers,which distort the measure of inequality. 
B)  A normal life-cycle pattern causes inequality in the income distribution but may not reflect inequality in living standards. 
C)  Transitory income is a better measure of inequality than permanent income. 
D)  Both a and b are correct. 
A)  Measurements of income distributions typically include in-kind transfers,which distort the measure of inequality. 
B)  A normal life-cycle pattern causes inequality in the income distribution but may not reflect inequality in living standards. 
C)  Transitory income is a better measure of inequality than permanent income. 
D)  Both a and b are correct.

Question 17

Which of the following statements is correct?

Accepted Answer

A)  Less than three percent of families are categorized as poor for eight years or more. 
B)  In the United States,the grandson of a millionaire is much more likely to be rich than the grandson of an average-income person. 
C)  The majority of millionaires in the United States inherited their wealth. 
D)  Most workers have about the same income (adjusted for inflation)when they are young as when they are middle-aged. 
A)  Less than three percent of families are categorized as poor for eight years or more. 
B)  In the United States,the grandson of a millionaire is much more likely to be rich than the grandson of an average-income person. 
C)  The majority of millionaires in the United States inherited their wealth. 
D)  Most workers have about the same income (adjusted for inflation)when they are young as when they are middle-aged.

Question 18

Liberalism suggests that public policies should aim to

Accepted Answer

A)  maximize the sum of utility of everyone in society. 
B)  maximize the well-being of the average person in society. 
C)  maximize the well-being of the worst-off person in society. 
D)  minimize the difference between the utility of the best-off person in the society and the utility of the worst-off person in society. 
A)  maximize the sum of utility of everyone in society. 
B)  maximize the well-being of the average person in society. 
C)  maximize the well-being of the worst-off person in society. 
D)  minimize the difference between the utility of the best-off person in the society and the utility of the worst-off person in society.

Question 19

Liberalism is the political philosophy espoused by

Accepted Answer

A)  Robert Nozick. 
B)  John Stuart Mill. 
C)  John Rawls. 
D)  Jeremy Bentham. 
A)  Robert Nozick. 
B)  John Stuart Mill. 
C)  John Rawls. 
D)  Jeremy Bentham.

Question 20

A negative income tax system was designed to

Accepted Answer

A)  provide in-kind benefits to the poor. 
B)  provide a minimum income to the poor. 
C)  reduce taxes on the rich when their incomes surpass the maximum income tax bracket. 
D)  subsidize food consumption in poor families. 
A)  provide in-kind benefits to the poor. 
B)  provide a minimum income to the poor. 
C)  reduce taxes on the rich when their incomes surpass the maximum income tax bracket. 
D)  subsidize food consumption in poor families.

Exam 20: Income Inequality and Poverty

Which group would be the least upset by wide variation in the income distribution?

Figure 20-2 Poverty Rates by Age -Refer to Figure 20-2.In 1968,the percent of adults aged 18 to 64 years in poverty is

Suppose that income is subject to constant marginal utility.From a utilitarian perspective,

On average,the distribution of income tends to be

"The government should choose policies to maximize the total utility of society." This statement is most closely associated with which political philosophy?

When we examine historical data on income inequality in the U.S. ,we see that the distribution of income gradually became

Would the maximin criterion achieve perfect income equality?

Diminishing marginal utility suggests that

The study by economists Cox and Alm found

Temporary Assistance for Needy Families (TANF)is an example of a negative income tax program.

Raising the welfare of the worst-off person in society is an important goal of which political philosophy?

The life cycle effect characterizes a lifetime income profile in which income

In the United States in 2005,the bottom fifth of the income distribution had incomes below $19,250.

The utilitarian justification for redistributing income is based on the assumption of diminishing marginal utility.

Which of the following represents a problem in measuring inequality?

Which of the following statements is correct?

Liberalism suggests that public policies should aim to

Liberalism is the political philosophy espoused by

A negative income tax system was designed to

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

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Five Debates Over Macroeconomic Policy

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