Chapter 20 Income Inequality and Poverty

Test B
1

Three-fourths of total income in the U.S. economy comes from a. rental income. b. labor earnings. c. returns to capital. d. corporate profit. ANSWER b. labor earnings. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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(ne -ay to describe the distribution of income in the economy is to a. calculate the bell cur.e that e/ists in any economy. b. use the 'nternational 'ncome %istribution Standards that -ere established in 100,. c. di.ide the population into t-o categories1the rich and the poor. d. calculate the percentage of families that fall into each of se.en income categories. ANSWER d. calculate the percentage of families that fall into each of se.en income categories. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
2

U.S. income data from 1003 sho- that the bottom one-fifth of all families recei.ed a. 4 percent of all income. b. 15 percent of all income. c. ,, percent of all income. d. 26 percent of all income. ANSWER a. 4 percent of all income. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
4

(.er the past se.eral decades7 the -omen8s mo.ement may be responsible for a. less ine9uality in family incomes. b. high-income men marrying lo--income -omen. c. rich households becoming poorer. d. more ine9uality in family incomes. ANSWER d. more ine9uality in family incomes. T!"E # $E!1 & SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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When the income distribution of the U.S. is compared to that of other countries7 it sho-s that the U.S. has a a. distribution that is one of the most e9ual income distributions. b. distribution that is one of the most une9ual income distributions. c. distribution that is some-here in the middle of the pac;. d. higher percentage of poor families7 and a higher percentage of rich families than most countries. ANSWER c. distribution that is some-here in the middle of the pac;. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !

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,,6 &hapter ,5>'ncome 'ne9uality and "o.erty NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# THIS QUESTION AND ITS ANSWER"
6

The po.erty line is e9ual to the a. a.erage income of the bottom one-fifth of all income recipients. b. a.erage income of the bottom one-tenth of all income recipients. c. cost of an ade9uate diet for a family multiplied by si/. d. cost of an ade9uate diet for a family multiplied by three. ANSWER d. cost of an ade9uate diet for a family multiplied by three. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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The annual ad@ustment to the po.erty line reflects a. family siAe. b. price changes. c. changes in -hat foods are included in an ade9uate diet. d. the number of people currently on public assistance. ANSWER b. price changes. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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The number of families li.ing in po.erty in the U.S. tends to be o.erstated by about a. , percent. b. : percent. c. 15 percent. d. 1: percent. ANSWER c. 15 percent. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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'n-;ind transfers a. can only be pro.ided by the Bederal go.ernment. b. are goods and ser.ices gi.en to the poor rather than cash. c. increase the number of families belo- the po.erty line since no money is gi.en. d. are ta;en into account -hen determining the degree of income ine9uality in the economy. ANSWER b. are goods and ser.ices gi.en to the poor rather than cash. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 4 RAN%(# !
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Transitory income refers to a. the regular pattern of income .ariation o.er a person8s life. b. a person8s normal income. c. the regular pattern of income .ariation that pea;s around age :5. d. temporary increases and decreases in income. ANSWER d. temporary increases and decreases in income. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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'ncome and sa.ing rates are highest for people -ho are a. retired. b. middle-aged. c. young and single. d. married -ith young children. ANSWER b. middle-aged. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !

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&hapter ,5>'ncome 'ne9uality and "o.erty ,,?

1,

The life-cycle theory -ould suggest that because people can borro- and sa.e to smooth out changes in income7 their standard of li.ing depends more on a. lifetime income rather than annual income. b. annual income rather than lifetime income. c. annual family income rather than annual personal income. d. a.erage monthly income rather than annual income. ANSWER a. lifetime income rather than annual income. T!"E # $E!1 & SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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The ne- formula being considered by the U.S. &ensus )ureau to compute the income threshold for the po.erty line -ould a. not change the po.erty line7 but the formula -ould be easier to compute. b. decrease the po.erty line and decrease the number of families belo- the po.erty line. c. increase the po.erty line and increase the number of families belo- the po.erty line. d. increase the po.erty line7 but the number of families considered poor -ould not change since the cost of li.ing is continuously rising. ANSWER c. increase the po.erty line and increase the number of families belo- the po.erty line. T!"E # $E!1 & SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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A family8s ability to buy goods and ser.ices depends largely on its normal or a.erage income -hich is its a. transitory income. b. in-;ind transfers. c. permanent income. d. lifetime income. ANSWER c. permanent income. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E , RAN%(# !
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Studies ha.e sho-n that if a father earns ,5 percent abo.e his generation8s a.erage income7 his son -ill most li;ely earn a. relati.ely the same income as his father. b. less than his father since the son has less incenti.e to -or; -ith a -ealthy father. c. ,, percent belo- his generation8s a.erage income. d. 3 percent abo.e his generation8s a.erage income. ANSWER d. 3 percent abo.e his generation8s a.erage income. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# ! NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# THIS QUESTION AND ITS ANSWER"
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E.idence indicates that a. most of the poor are poor for short periods of time. b. education is unrelated to po.erty. c. most of the poor are elderly. d. -or;ing does not reduce one8s chance of being poor. ANSWER a. most of the poor are poor for short periods of time. T!"E # $E!1 & SE&T'(N 1 ()*E&T'+E 1 RAN%(# ! NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# THIS QUESTION AND ITS ANSWER"

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,,3 &hapter ,5>'ncome 'ne9uality and "o.erty

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The political philosophy according to -hich the go.ernment should punish crimes and enforce .oluntary agreements but not redistribute income is a. liberalism. b. utilitarianism. c. communism. d. libertarianism. ANSWER d. libertarianism. T!"E # $E!1 & SE&T'(N , ()*E&T'+E 2 RAN%(# !
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)ecause of diminishing marginal utility7 a. the rich recei.e more satisfaction than the poor from the last dollar they spend since the rich ha.e more to spend. b. more of something is al-ays preferred to less of something7 especially money. c. the poor are less efficient at spending money than the rich. d. the poor recei.e more satisfaction than the rich from the last dollar they spend. ANSWER d. the poor recei.e more satisfaction than the rich from the last dollar they spend. T!"E # $E!1 % SE&T'(N , ()*E&T'+E 2 RAN%(# !
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)ecause of distorted incenti.es7 -hen the go.ernment tries to ma/imiAe total utility in the economy by redistributing income7 the policy -ill a. al-ays achie.e a full egalitarian society in a mar;et economy. b. al-ays fall short of a full egalitarian society. c. can only be achie.ed -ith a progressi.e income ta/ system. d. achie.e a full egalitarian society only if sufficient funds are transferred from the rich to the poor. ANSWER b. al-ays fall short of a full egalitarian society. T!"E # $E!1 & SE&T'(N , ()*E&T'+E 4 RAN%(# !
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Ra-l8s ma/imin criterion suggests that income transferred from the rich to the poor should aim to a. promote an egalitarian distribution of income. b. ma/imiAe the -ell-being of the -orst off person in society. c. ma/imiAe the -ell-being of each person in society. d. reduce the disincenti.es to -or; and sa.e that redistribution policy creates. ANSWER b. ma/imiAe the -ell-being of the -orst off person in society. T!"E # $E!1 & SE&T'(N , ()*E&T'+E 2 RAN%(# !
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Cibertarians -ould condone go.ernment in.ol.ement in an economy to ensure a. a distribution of income as e9ual as possible. b. e9ual opportunity7 but not an e9ual distribution of income. c. the -ell-being of the least fortunate in society. d. an ob@ecti.ely-determined @ust society. ANSWER b. e9ual opportunity7 but not an e9ual distribution of income. T!"E # $E!1 & SE&T'(N , ()*E&T'+E 2 RAN%(# !
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Do.ernment -elfare programs are often criticiAed because a. studies ha.e sho-n that these programs encourage single-parent households. b. the go.ernment spends more each year on -elfare programs than it does on national defense. c. most people on the -elfare roles today are actually ineligible to recei.e the benefits. d. they create incenti.es for people to become needy. ANSWER d. they create incenti.es for people to become needy. T!"E # $E!1 % SE&T'(N 2 ()*E&T'+E 4 RAN%(# !

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&hapter ,5>'ncome 'ne9uality and "o.erty ,,0

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(pponents of the 1006 la- that limits the time a family can recei.e -elfare benefits belie.e that a. children -ill become innocent .ictims of this la-. b. any money sa.ed by lo-ering -elfare roles -ill be di.erted to defense spending. c. -elfare is the best system the go.ernment has to distribute income to the really poor. d. little e.idence e/ists that staying on -elfare for long periods of time is detrimental to a family. ANSWER a. children -ill become innocent .ictims of this la-. T!"E # $E!1 & SE&T'(N 2 ()*E&T'+E 4 RAN%(# !
,4

Assume that the go.ernment proposes a negati.e income ta/ that calculates ta/es o-ed by the formula7 TAEES (WE% F G1>, 'N&(#EH I 1:7555. Bor a family earning J,57555 of income7 ho- -ould this negati.e income ta/ affect themK a. They -ill recei.e an income subsidy of J157555. b. They -ill recei.e an income subsidy of J:7555. c. They -ill pay a ta/ of J:7555. d. They -ill not be re9uired to pay any ta/. ANSWER b. They -ill recei.e an income subsidy of J:7555. T!"E # $E!1 E SE&T'(N 2 ()*E&T'+E 4 'NSTRU&T'(N , RAN%(# N
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Almost e.eryone agrees that the more e9ually policyma;ers attempt to di.ide the LpieM the a. more li;ely the middle class -ill be to Lstar.e.M b. larger the LpieM becomes. c. smaller the LpieM becomes. d. LfatterM the rich become. ANSWER c. smaller the LpieM becomes. T!"E # $E!1 & SE&T'(N 2 ()*E&T'+E 4 RAN%(# !

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ANSWER b. labor earnings. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !

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ANSWER d. calculate the percentage of families that fall into each of se.en income categories. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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ANSWER a. 4 percent of all income. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !

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ANSWER d. more ine9uality in family incomes. T!"E # $E!1 & SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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ANSWER c. distribution that is some-here in the middle of the pac;. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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ANSWER d. cost of an ade9uate diet for a family multiplied by three. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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ANSWER b. price changes. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !

3

ANSWER c. 15 percent. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !

0

ANSWER b. are goods and ser.ices gi.en to the poor rather than cash. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 4 RAN%(# !
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ANSWER d. temporary increases and decreases in income. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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ANSWER b. middle-aged. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !

1,

ANSWER a. lifetime income rather than annual income. T!"E # $E!1 & SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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ANSWER c. increase the po.erty line and increase the number of families belo- the po.erty line. T!"E # $E!1 & SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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ANSWER c. permanent income. T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E , RAN%(# !

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ANSWER d. 3 percent abo.e his generationNs a.erage income.

T!"E # $E!1 % SE&T'(N 1 ()*E&T'+E 1 RAN%(# !

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ANSWER a. most of the poor are poor for short periods of time. T!"E # $E!1 & SE&T'(N 1 ()*E&T'+E 1 RAN%(# !
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ANSWER d. libertarianism. T!"E # $E!1 & SE&T'(N , ()*E&T'+E 2 RAN%(# !

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ANSWER d. the poor recei.e more satisfaction than the rich from the last dollar they each spend. T!"E # $E!1 % SE&T'(N , ()*E&T'+E 2 RAN%(# !
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ANSWER b. al-ays fall short of a full egalitarian society. T!"E # $E!1 & SE&T'(N , ()*E&T'+E 4 RAN%(# !
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ANSWER b. ma/imiAe the -ell-being of the -orst off person in society. T!"E # $E!1 & SE&T'(N , ()*E&T'+E 2 RAN%(# !
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ANSWER b. e9ual opportunity7 but not an e9ual distribution of income. T!"E # $E!1 & SE&T'(N , ()*E&T'+E 2 RAN%(# !
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ANSWER d. they create incenti.es for people to become needy. T!"E # $E!1 % SE&T'(N 2 ()*E&T'+E 4 RAN%(# !
,2

ANSWER a. children -ill become innocent .ictims of this la-. T!"E # $E!1 & SE&T'(N 2 ()*E&T'+E 4 RAN%(# !
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ANSWER b. They -ill recei.e an income subsidy of J:7555. T!"E # $E!1 E SE&T'(N 2 ()*E&T'+E 4 'NSTRU&T'(N , RAN%(# N
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ANSWER c. smaller the LpieM becomes. T!"E # $E!1 & SE&T'(N 2 ()*E&T'+E 4 RAN%(# !