Question 1

The calculation of the poverty line includes adjustments for

Accepted Answer

A)  energy costs. 
B)  child care costs. 
C)  the level of prices. 
D)  the Earned Income Tax Credit.

Question 2

The poverty line is an absolute standard and is based on the cost of providing an adequate diet.

Accepted Answer

A) True 
 B)False

Question 3

A family's ability to buy goods and services depends largely on the family's

Accepted Answer

A)  economic mobility. 
B)  place in the economic life cycle. 
C)  transitory income. 
D)  permanent income.

Question 4

Marco earns more than Antonio. A legislator proposes taxing Marco to supplement Antonio's income. A libertarian would view this proposal as

Accepted Answer

A)  a way to improve the welfare of all in society. 
B)  a way to enhance Antonio's income in a socially responsible way. 
C)  validation of the role of diminishing marginal utility over the maximin criterion. 
D)  an inappropriate role for government, since government should not redistribute income.

Question 5

Table 20-6
 
-Refer to Table 20-6. In both 2011 and 2012, approximately 25% of the population earned less than

Accepted Answer

A)  $15,000. 
B)  $25,000. 
C)  $50,000. 
D)  $100,000.

Question 6

Which political philosophy argues that the government should choose policies to maximize the total utility of everyone in society?

Accepted Answer

The answer of Which political philosophy argues that the government...

Question 7

Economic mobility in the United States is

Accepted Answer

A)  great, so many of those below the poverty line are there only temporarily. 
B)  rare, so most of those below the poverty line are there for decades. 
C)  rare, yet many of those below the poverty line are there only temporarily. 
D)  unrelated to poverty.

Question 8

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.

Question 9

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 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

Question 10

The poverty line is based on the percentage of people who cannot afford an adequate diet.

Accepted Answer

A) True 
 B)False

Question 11

A utilitarian government has to balance the gains from greater income equality against the losses from distorted work incentives. To maximize total utility, therefore, the government

Accepted Answer

A)  would never tax labor income. 
B)  must always achieve a fully egalitarian society. 
C)  enacts policies that only benefit the middle class. 
D)  stops short of a fully egalitarian society.

Question 12

Government vouchers to purchase food, also known as food stamps, are an example of

Accepted Answer

A)  an in-kind transfer. 
B)  life-cycle income. 
C)  a negative income tax. 
D)  permanent income.

Question 13

"An extra dollar of income gives more additional satisfaction to a poor person than to a rich person." This is an important assumption of which political philosophy?

Accepted Answer

A)  utilitarianism 
B)  liberalism 
C)  libertarianism 
D)  republicanism

Question 14

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.

Question 15

The founders of utilitarianism include

Accepted Answer

A)  A. C. Pigou and John Maynard Keynes. 
B)  Jeremy Bentham and John Stuart Mill. 
C)  Augustin Cournot and Jean c. Say. 
D)  A. Kondratieff and Thomas Malthus.

Question 16

Suppose society consists of four individuals: Andy, Bill, Carl, and David. Andy has $20,000 of income, Bill has $40,000 of income, Carl has $60,000 of income, and David has $80,000 of income. A utilitarian would argue that

Accepted Answer

A)  taking $1 from Bill and giving it to Carl would increase society's total utility. 
B)  taking $1 from Carl and giving it to Andy would increase society's total utility. 
C)  taking $1 from Carl and giving it to David would increase society's total utility. 
D)  taking $1 from Bill and giving it to David would increase society's total utility.

Question 17

What measure does the federal government use when setting the official poverty line in the US?

Accepted Answer

The answer of What measure does the federal government use...

Question 18

Table 20-10
  *A Gini coefficient is a commonly used measure of income inequality, with values between 0 and 1 (0 corresponds to perfect equality whereby everyone has exactly the same income, and 1 corresponds to perfect inequality where one person has all the income, while everyone else has zero income).
Source: The World Bank
-Refer to Table 20-10. Which of the following statements is correct?

Accepted Answer

A)  Latvia has the most unequal distribution of income. 
B)  France has a more equal distribution of income than Italy. 
C)  Sweden has the most equal distribution of income. 
D)  All of the above are correct.

Question 19

When the government provides poor families with antipoverty programs such as welfare, Medicaid, food stamps, and the Earned Income Tax Credit which are all tied to income,

Accepted Answer

A)  the government creates an egalitarian distribution of income. 
B)  the recipients can usually receive benefits for an unlimited amount of time. 
C)  it is common for families to face very high effective marginal tax rates. 
D)  the incentive to work and earn more income remains unchanged.

Question 20

If the U.S. government determines that the cost of feeding an urban family of four is $5,200 per year, then the official poverty line for a family of that type is

Accepted Answer

A)  $10,400. 
B)  $15,600. 
C)  $20,800. 
D)  $26,000.

Exam 20: Income Inequality and Poverty