Question 1

The United States has less income inequality than

Accepted Answer

A)  Ethiopia. 
B)  United Kingdom. 
C)  Vietnam. 
D)  Mexico. 
A)  Ethiopia. 
B)  United Kingdom. 
C)  Vietnam. 
D)  Mexico.

Question 2

Economists study poverty and income inequality to answer which of the following questions?

Accepted Answer

A)  What are people's wages? 
B)  How does labor-force experience affect wages? 
C)  How much inequality is there in society? 
D)  How do people adjust their behavior due to taxation? 
A)  What are people's wages? 
B)  How does labor-force experience affect wages? 
C)  How much inequality is there in society? 
D)  How do people adjust their behavior due to taxation?

Question 3

Compare and contrast the "life cycle" hypothesis and the "permanent income" hypothesis. What are their respective implications for inequality in the income distribution?

Accepted Answer

Life­cycle variation in income suggests

Question 4

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 5

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 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 2011. 
B)  more equal between 1935 and 1973, but that trend reversed itself between 1973 and 2011. 
C)  more unequal between 1935 and 1973, but that trend reversed itself between 1973 and 2011. 
D)  more unequal between 1935 and 2011. 
A)  more equal between 1935 and 2011. 
B)  more equal between 1935 and 1973, but that trend reversed itself between 1973 and 2011. 
C)  more unequal between 1935 and 1973, but that trend reversed itself between 1973 and 2011. 
D)  more unequal between 1935 and 2011.

Question 7

When the government taxes income as part of a redistribution program,

Accepted Answer

A)  the poor pay higher taxes. 
B)  the rich always benefit more than the poor. 
C)  the poor are encouraged to work. 
D)  incentives to earn income are diminished. 
A)  the poor pay higher taxes. 
B)  the rich always benefit more than the poor. 
C)  the poor are encouraged to work. 
D)  incentives to earn income are diminished.

Question 8

Suppose that Jamal is moving to a state where personal incomes are distributed randomly. If Jamal believes in liberalism, he would prefer

Accepted Answer

A)  an income distribution that is relatively equal. 
B)  that everyone has the same work opportunities and market-determined wage rates. 
C)  that private property be transformed to government property to safeguard people's incomes. 
D)  less economic assistance to the poor because it distorts the price system. 
A)  an income distribution that is relatively equal. 
B)  that everyone has the same work opportunities and market-determined wage rates. 
C)  that private property be transformed to government property to safeguard people's incomes. 
D)  less economic assistance to the poor because it distorts the price system.

Question 9

The poverty line in the country of Inequalia is $7,800. The distribution of income for Inequalia is as follows: Number of Families Income     200 less than $5,000
300 between $5,000 and $10,000
500 between $10,000 and $15,000
700 between $15,000 and $20,000
300 over $20,000   The poverty rate in Inequalia is

Accepted Answer

A)  7.8 percent. 
B)  between 10 percent and 25 percent. 
C)  between 25 percent and 50 percent. 
D)  39 percent. 
A)  7.8 percent. 
B)  between 10 percent and 25 percent. 
C)  between 25 percent and 50 percent. 
D)  39 percent.

Question 10

Which political philosophy believes that the government should equalize the incomes of all members of society?

Accepted Answer

A)  Utilitarianism. 
B)  Liberalism. 
C)  Libertarianism. 
D)  None of the above is correct. 
A)  Utilitarianism. 
B)  Liberalism. 
C)  Libertarianism. 
D)  None of the above is correct.

Question 11

In the United States, long-term poverty affects

Accepted Answer

A)  more families than short-term poverty. 
B)  an equal number of families as short-term poverty. 
C)  slightly fewer families than short-term poverty. 
D)  many fewer families than short-term poverty. 
A)  more families than short-term poverty. 
B)  an equal number of families as short-term poverty. 
C)  slightly fewer families than short-term poverty. 
D)  many fewer families than short-term poverty.

Question 12

Scenario 20-3
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 families earning less than $35,000 pay no income tax and families earning more than $35,000 pay 10% of their income in taxes. The income tax revenue collected from those families earning over
$35,000 is then redistributed equally to those families earning less than $35,000.
-Refer to Scenario 20-3. Assuming that utility is directly proportional to the cash value of after-tax income, which government policy would an advocate of utilitarianism 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 13

Which of the following programs would be opposed by philosopher John Rawls?

Accepted Answer

A)  a negative income tax 
B)  the Supplemental Security Income (SSI) program 
C)  a tax plan creating a perfectly egalitarian income distribution 
D)  Rawls would oppose all of the programs. 
A)  a negative income tax 
B)  the Supplemental Security Income (SSI) program 
C)  a tax plan creating a perfectly egalitarian income distribution 
D)  Rawls would oppose all of the programs.

Question 14

Poor families are eligible for financial assistance, without having to demonstrate any additional "need,"

Accepted Answer

A)  under the current welfare system and under a negative income tax. 
B)  under the current welfare system but not under a negative income tax. 
C)  under a negative income tax but not under the current welfare system. 
D)  under neither the current welfare system nor under a negative income tax. 
A)  under the current welfare system and under a negative income tax. 
B)  under the current welfare system but not under a negative income tax. 
C)  under a negative income tax but not under the current welfare system. 
D)  under neither the current welfare system nor under a negative income tax.

Question 15

The poverty line is set by the government so that 10 percent of all families fall below that line and are thereby classified as "poor."

Accepted Answer

A) True 
 B)False

Question 16

Scenario 20-4
Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability:
Taxes owed = (1/5 of income) - $15,000
-Refer to Scenario 20-4. A family earning $100,000 before taxes would have how much after-tax income?

Accepted Answer

A)  $50,000 
B)  $65,000 
C)  $80,000 
D)  $95,000 
A)  $50,000 
B)  $65,000 
C)  $80,000 
D)  $95,000

Question 17

Which of the following statements is correct?

Accepted Answer

A)  The distribution of annual income accurately reflects the distribution of living standards. 
B)  Permanent incomes are more equally distributed than annual incomes. 
C)  Transitory changes in income generally have a significant impact on a family's standard of living. 
D)  Annual income is more equally distributed than permanent income. 
A)  The distribution of annual income accurately reflects the distribution of living standards. 
B)  Permanent incomes are more equally distributed than annual incomes. 
C)  Transitory changes in income generally have a significant impact on a family's standard of living. 
D)  Annual income is more equally distributed than permanent income.

Question 18

Since the early 1970s, average incomes have

Accepted Answer

A)  increased, which has reduced the poverty rate. 
B)  increased, while the poverty rate increased slightly. 
C)  decreased, while the poverty rate has remained unchanged. 
D)  remained unchanged, while the poverty rate has decreased. 
A)  increased, which has reduced the poverty rate. 
B)  increased, while the poverty rate increased slightly. 
C)  decreased, while the poverty rate has remained unchanged. 
D)  remained unchanged, while the poverty rate has decreased.

Question 19

Figure 20-3  
-Refer to Figure 20-3. In 1968, the percent of elderly aged 65 and over in poverty is

Accepted Answer

A)  higher than both the percentage of adults aged 18 to 64 and the percentage of children under age 18 in poverty. 
B)  higher than the percentage of adults aged 18 to 64 but is lower than the percentage of children under age 18 in poverty. 
C)  lower than both the percentage of adults aged 18 to 64 and the percentage of children under age 18 in poverty. 
D)  is lower than the percentage of adults aged 18 to 64 but is higher than the percentage of children under age 18 in poverty. 
A)  higher than both the percentage of adults aged 18 to 64 and the percentage of children under age 18 in poverty. 
B)  higher than the percentage of adults aged 18 to 64 but is lower than the percentage of children under age 18 in poverty. 
C)  lower than both the percentage of adults aged 18 to 64 and the percentage of children under age 18 in poverty. 
D)  is lower than the percentage of adults aged 18 to 64 but is higher than the percentage of children under age 18 in poverty.

Question 20

Libertarians believe that

Accepted Answer

A)  it is more important to evaluate the process by which economic outcomes are produced than the outcomes themselves. 
B)  government should attempt to redistribute income from the rich to the poor when the gap between rich and poor is more than 20%. 
C)  equality of income is more important than equality of opportunity. 
D)  it is more important to evaluate economic outcomes first and then the process that produced them. 
A)  it is more important to evaluate the process by which economic outcomes are produced than the outcomes themselves. 
B)  government should attempt to redistribute income from the rich to the poor when the gap between rich and poor is more than 20%. 
C)  equality of income is more important than equality of opportunity. 
D)  it is more important to evaluate economic outcomes first and then the process that produced them.

Exam 20: Income Inequality and Poverty

The United States has less income inequality than

Economists study poverty and income inequality to answer which of the following questions?

Compare and contrast the "life cycle" hypothesis and the "permanent income" hypothesis. What are their respective implications for inequality in the income distribution?

Diminishing marginal utility suggests that

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,

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

When the government taxes income as part of a redistribution program,

Suppose that Jamal is moving to a state where personal incomes are distributed randomly. If Jamal believes in liberalism, he would prefer

Which political philosophy believes that the government should equalize the incomes of all members of society?

In the United States, long-term poverty affects

Which of the following programs would be opposed by philosopher John Rawls?

Poor families are eligible for financial assistance, without having to demonstrate any additional "need,"

The poverty line is set by the government so that 10 percent of all families fall below that line and are thereby classified as "poor."

Scenario 20-4 Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability: Taxes owed = (1/5 of income) - $15,000 -Refer to Scenario 20-4. A family earning $100,000 before taxes would have how much after-tax income?

Which of the following statements is correct?

Since the early 1970s, average incomes have

Figure 20-3 -Refer to Figure 20-3. In 1968, the percent of elderly aged 65 and over in poverty is

Libertarians believe that

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

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

Monopolistic Competition

Oligopoly

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

Six Debates Over Macroeconomic Policy

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