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Chapter 12

Income Distribution, Poverty, and Discrimination

1. "Dividing the economic pie more equally may reduce the size of the economic pie." This argument is characterized as

a. untrue.

b. a form of discrimination.

c. a conflict between equity and efficiency.

d. a conflict between full employment and economic growth.

ANS

a. Incorrect. This statement is not untrue-it has validity.

b. Incorrect. This statement does not concern discrimination.

c. Correct. Equal shares of the economic pies reduce the incentive to work and increase the size of the pie.

d. Incorrect. Full employment is not the concern for equal distribution.

2. The highest fifth of all families receive approximately of the distribution of annual money income among families.

a. 5 percent

b. 10 percent

c. 25 percent

d. 50 percent

ANS

a. Incorrect. The correct answer is 50 percent. See Exhibit 1 in the text. See Exhibit 1 in the text.

b. Incorrect. The correct answer is 50 percent. See Exhibit 1 in the text. See Exhibit 1 in the text.

c. Incorrect. The correct answer is 50 percent. See Exhibit 1 in the text. See Exhibit 1 in the text.

d. Correct. This percent is closest to the correct figure. See Exhibit 1 in the text. See Exhibit 1 in the text.

3. Which of the following graphs shows the cumulative shares of income received by a family ?

a. Distribution curve.

b. Lorenz curve.

c. Ricardian curve.

d. Quintlile curve.

ANS

a. Incorrect. This is a meaningless term. See Exhibit 4 in the text.

b. Correct. A graph that shows the cumulative shares of income received by a family is a Lorenz curve. See Exhibit 4 in the text.

c. Incorrect. This is a meaningless term. See Exhibit 4 in the text.

d. Incorrect. This is a meaningless term. See Exhibit 4 in the text.

Exhibit 11 Lorenz Curve

[pic]

4. As shown in Exhibit 11, the perfect equality line is drawn between points

a. A and B.

b. B and D.

c. A and C along the straight line.

d. A and C along the curve.

ANS

a. Incorrect. Points A and B are not the complete perfect equality line.

b. Incorrect. Points B and D are not the perfect equality line.

c. Correct. The perfectly equality line is drawn between points A and C.

d. Incorrect. Points A and C are not the perfect equality line.

5. As shown in Exhibit 11, 60 percent of families earned a cumulative share of about what percent of income?

a. 5 percent

b. 15 percent

c. 30 percent

d. 50 percent

ANS

a. Incorrect. The correct answer is 30 percent.

b. Incorrect. The correct answer is 30 percent.

c. Correct. Thirty percent is read from the vertical axis.

d. Incorrect. The correct answer is 30 percent.

6. When the Lorenz curve lies above the diagonal,

a. the poorest 20 percent of the population receive more than 20 percent of income.

b. the richest 20 percent of the population receive more than 20 percent of income.

c. everyone receives the same income.

d. the curve is wrong because it is impossible for the graph to look like this.

ANS

a. Incorrect. The Lorenz curve lies below the diagonal.

b. Incorrect. The Lorenz curve lies below the diagonal.

c. Incorrect. In this case, the Lorenz curve would equal the diagonal.

d. Correct. The Lorenz curve is drawn below the diagonal.

7. The poverty line

a. separates those on welfare from those not on welfare.

b. equals three times an economy food budget.

c. equals the median income level.

d. includes all of the above answers.

ANS

a. Incorrect. The basis for receiving welfare is determined by the government regardless of the poverty line.

b. Correct. The poverty line equals three times an economy food budget.

c. Incorrect. The poverty line is not based on median income.

d. Incorrect. Answers a. and c. are not correct.

8. Which of the following government programs provides recipients with unrestricted cash payments?

a. Temporary Assistance to Needy Families (TANF)

b. Medicaid

c. The food stamp program

d. Housing assistance programs

ANS

a. Correct. TANF provides cash rather than in-kind transfers.

b. Incorrect. This is an in-kind transfer.

c. Incorrect. This is an in-kind transfer.

d. Incorrect. This is an in-kind transfer.

9. Medicaid and food stamps are

a. available only to families.

b. counterproductive.

c. forms of in-kind assistance.

d. forms of cash assistance.

ANS

a. Incorrect. Individuals are eligible.

b. Incorrect. This is a normative argument.

c. Correct. These programs are not cash programs.

d. Incorrect. These programs are not cash programs.

Exhibit 12 Negative income tax

[pic]

10. As shown in Exhibit 12, a family of four pays income taxes at

a. an income of $5,000.

b. any income between zero and $40,000.

c. all levels of income.

d. any income above $40,000.

ANS

a. Incorrect. At $5,000 no tax is paid.

b. Incorrect. Between zero and $40,000, so tax is paid.

c. Incorrect. Below $40,000 no tax is paid.

d. Correct. Below $40,000 no tax is paid.

11. As shown in Exhibit 12, a family of four with no earned income receives

from the government.

a. zero payment.

b. the break-even income of $40,000.

c. a $20,000 payment.

d. a $20,000 tax deferment.

ANS

a. Incorrect. Below $40,000 all levels of income receive a payment.

b. Incorrect. The family receives a $20,000 payment.

c. Correct. This figure is real as a negative value on the vertical axis.

d. Incorrect. There are not tax deferments in the negative income tax scheme.

12. Under the negative income tax scheme in Exhibit 12, families earning between

$10,000 and $40,000 would

a. receive the maximum negative income tax payment of $20,000.

b. receive payments under the negative income tax.

c. pay no income taxes, but receive no payments.

d. do none of the above.

ANS

a. Incorrect. The maximum payment is at zero income.

b. Correct. Income levels below $40,000 all families receive payments.

c. Incorrect. Income levels below $40,000 all families receive payments.

d. Incorrect. Answer b. is correct.

13. Which of the following might increase the supply curve of labor?

a. Elimination of discrimination against blacks

b. Elimination of discrimination against females

c. Easing licensing requirements

d. Doing all of the above

ANS

a. Incorrect. Each answer is correct.

b. Incorrect. Each answer is correct.

c. Incorrect. Each answer is correct.

d. Correct. Each answer is correct.

14. Consider a law that limits women's access to certain "dangerous" occupations like coal mining and military combat service. Such a law would likely reduce women's wages because

a. women would be overqualified for "non-dangerous" jobs.

b. labor supply in female-intensive occupations would increase.

c. women would be less likely to obtain college degrees.

d. comparable worth would no longer exist between men's and women's occupations.

ANS

a. Incorrect. Being overqualified would not reduce wages.

b. Correct. Such a law would likely reduce women's wages because labor supply in female-intensive occupations would increase.

c. Incorrect. This situation has no effect on women obtaining college degrees.

d. Incorrect. It can be argued that comparable worth be applied regardless of this law.

15. Comparable worth is the principle that

a. goods and services priced the same have about the same worth.

b. the wage rate equals the value of productivity.

c. men and women should be paid comparably.

d. employees who perform comparable jobs should be paid the same wage.

ANS

a. Incorrect. Comparable worth concerns equal wages not product prices.

b. Incorrect. Rather than productivity, comparable worth uses a nonmarket wage-setting process.

c. Incorrect. Men and women should be paid equal for jobs that require similar education, training, experience, and training.

d. Correct. Comparable worth is the principle that employees who perform comparable jobs should be paid the same wage.

16. Which of the following graphs shows the percentage of the families on one axis and the percentage of income on the other?

a. Budget-distribution curve.

b. Income-consumption curve.

c. Lorenz curve.

d. Marx curve.

ANS

a. Incorrect. This is a meaningless term.

b. Incorrect. This is a meaningless term.

c. Correct. A graph that shows the percentage of the families on one axis and the percentage of income on the other is called the Lorenz curve.

d. Incorrect. This is a meaningless term.

17. As shown in Exhibit 4 in the text, when the Lorenz curve lies above the diagonal,

a. the poorest 20 percent of the population receive more than 20 percent of income..

b. the richest 20 percent of the population receive more than 20 percent of income.

c. everyone receives the same income.

d. the country’s income has been rising over time.

e. it is wrong since it is impossible for the graph to look like this.

ANS

a. Incorrect. This is wrong because the Lorenz curve must be drawn below the diagonal. See Exhibit 4 in the text.

b. Incorrect. This is wrong because the Lorenz curve must be drawn below the diagonal. See Exhibit 4 in the text.

c. Incorrect. This is wrong because the Lorenz curve must be drawn below the diagonal. See Exhibit 4 in the text.

d. Incorrect. See Exhibit 4 in the text.

e. Correct. See Exhibit 4 in the text.

18. The official U.S. poverty line for a family is calculated by taking 3 times the annual cost of

a. public housing.

b. basic medical care.

c. utilities and transportation.

d. a minimal diet.

ANS

a. Incorrect. The official U.S. poverty line for a family is calculated by multiplying 3 times the annual cost of a minimal diet.

b. Incorrect. The official U.S. poverty line for a family is calculated by multiplying 3 times the annual cost of a minimal diet.

c. Incorrect. The official U.S. poverty line for a family is calculated by multiplying 3 times the annual cost of a minimal diet.

d. Correct. The official U.S. poverty line for a family is calculated by multiplying 3 times the annual cost of a minimal diet.

19. Which of the following program(s) examples is (are) in-kind assistance to fight poverty in the United States?

a. b and e

b. Medicaid

c. Unemployment benefits

d. Temporary Assistance to Needy Families (TANF)

e. Food stamps

ANS

a. Correct. Both Medicaid and food stamps are in-kind assistance.

b. Incorrect. Both Medicaid and food stamps are in-kind assistance.

c. Incorrect. This is a cash payment.

d. Incorrect. This is a cash payment.

e. Incorrect. Both Medicaid and food stamps are in-kind assistance.

20. The incentive to work is an ingredient of the negative income tax because

a. if families 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 more income earned in the workplace, the higher the payment from the government.

ANS

a. Incorrect. Families that earn less than a break-even income receive a government payment (negative tax).

b. Incorrect. Families that earn zero receive a government payment (negative tax).

c. Correct. The incentive to work is an ingredient of the negative income tax because the more income earned in the workplace, the higher the family’s after-tax income.

d. Incorrect. As income rises, the government payment (negative tax) because zero at the break-even income.

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