Chapter 20Income Inequality and Pov

Chapter 20
Income Inequality and Poverty
1. The percentage of families with incomes below the poverty line
a. is defined as the lowest 10 percent of households in terms of incomes in the United States.
b. is known as the poverty rate.
c. is known as the unemployment rate.
d. rises as the general income level rises.
ANSWER: b is known as the poverty rate.
SECTION: 1 OBJECTIVE: 1

2. The income level below which families are said to be poor is known as the
a. income maintenance threshold.
b. poverty line.
c. bottom quintile of the income distribution.
d. minimum wage.
ANSWER: b poverty line.
SECTION: 1 OBJECTIVE: 1
3. If the U.S. government determines that the cost of feeding an urban family of six is $6,000 per year, then the official poverty line for a family of that type is
a. $6,000.
b. $12,000.
c. $18,000.
d. $36,000.
ANSWER: c $18,000.
SECTION: 1 OBJECTIVE: 1
4. What two main factors have raised U.S. income inequality recently?
a. technical change and increased labor union membership
b. increased labor union membership and higher tax rates
c. technical change and expanded international trade
d. lower tax rates and expanded international trade
ANSWER: c technical change and expanded international trade
SECTION: 1 OBJECTIVE: 1
5. About what percent of all U.S. income goes to the top fifth of the income distribution?
a. 10%.
b. 25%
c. 47%
d. 63%
ANSWER: c 47%
SECTION: 1 OBJECTIVE: 1
6. About what percent of all U.S. income goes to the bottom fifth of the income distribution?
a. 10%
b. 8%
c. 6%
d. 4%
ANSWER: d 4%
SECTION: 1 OBJECTIVE: 1
7. In richer countries, the distribution of income tends to be __________ within poorer countries.
a. much less equal than
b. slightly less equal than
c. distributed about the same as
d. more equal than
ANSWER: d more equal than
SECTION: 1 OBJECTIVE: 1
8. Over the past 20 years, wages for college graduates __________ and wages for workers with less education __________.
a. rose; rose.
b. rose; fell.
c. fell; rose.
d. fell; fell
ANSWER: b rose; fell
SECTION: 1 OBJECTIVE: 1
9. Which of the following groups has the highest poverty rate?
a. black
b. Asian/Pacific Islander
c. children (under age 16)
d. female-headed household
ANSWER: d female-headed household
SECTION: 2 OBJECTIVE: 3
10. Medicaid and food stamps are
a. available only to the elderly.
b. forms of in-kind assistance.
c. forms of cash assistance.
d. transfer payments.
ANSWER: b forms of in-kind assistance.
SECTION: 1 OBJECTIVE: 2
11. Susan won big at the blackjack tables on her birthday. The money she won is considered to be
a. permanent income.
b. life-cycle income.
c. transitory income.
d. an in-kind transfer.
ANSWER: c transitory income.
SECTION: 1 OBJECTIVE: 2
12. Suppose Fred’s marginal utility of an extra dollar of income is 56 and Sally’s is 34. If a dollar is taken from
a. Sally and given to Fred, the economy’s total utility will rise by 22 units.
b. Fred and given to Sally, the economy’s total utility will rise by 22 units.
c. Sally and given to Fred, the economy’s total utility will rise by 34 units.
d. Sally and given to Fred, the economy’s total utility will rise by 56 units.
ANSWER: a Sally and given to Fred, the economy’s total utility will rise by 22 units.
SECTION: 2 OBJECTIVE: 3
13. According to a utilitarian, total social utility will be maximized when marginal dollars are distributed to the people with the
a. greatest need.
b. highest marginal utility of income.
c. highest total utility from their income.
d. most productive labor resources.
ANSWER: b highest marginal utility of income.
SECTION: 2 OBJECTIVE: 3
14. In a world where people would have no prior information about where they are in an income distribution, given the choice, Rawls argues that they would prefer
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 their incomes.
d. less economic assistance to the poor because it distorts the price system.
ANSWER: a an income distribution that is relatively equal.
SECTION: 2 OBJECTIVE: 3
15. The philosopher John Rawls argued that
a. people would choose income equality if they had to determine an economic distribution system before knowing their place in it.
b. people would choose income inequality to allow the maximum use of their individual talents.
c. government has a role to ensure income equality to prevent social unrest.
d. people would choose income equality because it is morally right.
ANSWER: a people would choose income equality if they had to determine an economic distribution system before knowing their place in it.
SECTION: 1 OBJECTIVE: 1
16. According to a libertarian, if income were to be distributed equally
a. productivity would increase.
b. it would take a little time for the distribution to become unequal again.
c. the marginal product of the poor would rise and the marginal product of the rich would rise.
d. productivity in the economy would decrease.
ANSWER: d productivity in the economy would decrease.
SECTION: 2 OBJECTIVE: 3
17. The case for income inequality is supported by which of the following arguments?
a. personal misfortune being a random event
b. economic efficiency
c. Rawls’ maximin policy
d. Utilitarianism
ANSWER: b economic efficiency
SECTION: 2 OBJECTIVE: 3
18. Critics of utilitarianism say that it requires an impossible
a. belief in utility functions.
b. interpersonal comparison of utility.
c. ranking of people’s preferences across different goods.
d. analysis of marginal utility.
ANSWER: b interpersonal comparison of utility.
SECTION: 2 OBJECTIVE: 3
19. The poor in the United States are disproportionately people who
a. have less than a high school education.
b. have incomes that are essentially nonwage incomes.
c. are poor white women.
d. live in cities.
ANSWER: a have less than a high school education.
SECTION: 3 OBJECTIVE: 4
20. Price ceilings and minimum wages may increase poverty in the long run because they tend to
a. decrease the incentive to work among the poor.
b. increase the level of saving among the rich.
c. increase productivity of labor among the rich and poor.
d. promote investment activity by the rich.
ANSWER: a decrease the incentive to work among the poor.
SECTION: 1 OBJECTIVE: 1
21. Suppose a negative income tax program is established at 25 percent, and a poverty threshold minimum of $15,000 is guaranteed for a family of four. If no income is earned by this family, its total income would equal
a. $6,000.
b. $15,000.
c. $18,750.
d. $60,000.
ANSWER: b $15,000.
SECTION: 3 OBJECTIVE: 4
22. The incentive to work is an ingredient of the negative income tax because
a. if families do work, they will be eliminated from the program.
b. if families don’t work, they will be eliminated from the program.
c. the more income earned in the workplace, the higher the family’s after-tax income.
d. the amount earned in the workplace is not subject to income taxes.
ANSWER: c the more income earned in the workplace, the higher the family’s after-tax income.
SECTION: 3 OBJECTIVE: 4
23. A negative income tax system was designed to
a. provide in-kind benefits to the poor.
b. provide minimal income to the poor.
c. reduce taxes on the rich when their incomes surpass the maximum income tax bracket.
d. increase income payments to the poor specifically for housing payments.
ANSWER: b provide minimal income to the poor.
SECTION: 3 OBJECTIVE: 4
24. The main problem with a negative income tax system is that it
a. guarantees every household a minimum level of income.
b. causes excessive government meddling in people’s lives.
c. is too complex to administer fairly.
d. ignores the culture of poverty that produces less income.
ANSWER: d ignores he culture of poverty that produces less income.
SECTION: 3 OBJECTIVE: 4
25. Social security and unemployment insurance benefits are examples of
a. transfer payments.
b. negative income payments.
c. property income.
d. compensating differentials.
ANSWER: a transfer payments.
SECTION: 1 OBJECTIVE: 1