Question 1

Greater income equality that is achieved through the redistribution of income is thought to:

Accepted Answer

A)   stimulate innovation and entrepreneurship.
B)   promote economic efficiency in the economy.
C)   increase incentives to work,save,and invest in the economy.
D)   come at the opportunity cost of reduced production and income.E) B) and D)
F) B) and C)

Question 2

The benefit-reduction rate is the rate at which government benefits increase as the earned income of a family increases.

Accepted Answer

A) True 
 B)False

Question 3

Refer to the above graph.A nation that has an income distribution of perfect equality would be represented by the above curve:

Accepted Answer

A)   a.
B)   b.
C)   c.
D)   d.E) A) and D)
F) A) and C)

Question 4

Recent government statistics indicate that about 20 percent of the nation lives in poverty.

Accepted Answer

A) True 
 B)False

Question 5

Refer to the above graph.If a curve shifted from (d) to (b) ,then the Gini ratio would:

Accepted Answer

A)   increase.
B)   decrease.
C)   remain constant.
D)   become negative.E) None of the above
F) A) and B)

Question 6

Social insurance is distinguished from public assistance,or welfare,by the fact that:

Accepted Answer

A)   all social insurance benefits are paid in cash while all public assistance benefits are paid in kind (food,housing,medical care) .
B)   an individual acquires a right to social insurance benefits by meeting objective eligibility criteria while public assistance benefits are determined according to individual need.
C)   the total amount paid in benefits is much larger in the public assistance programs than in the social insurance programs.
D)   payroll taxes are used to finance public assistance programs while general revenues are used to finance social insurance programs.E) All of the above
F) C) and D)

Question 7

In 2009,the percentage of the total population that lived in poverty was approximately:

Accepted Answer

A)   5 percent and the percentage of African Americans who lived in poverty was approximately 10 percent.
B)   7 percent and the percentage of African Americans who lived in poverty was approximately 14 percent.
C)   12 percent and the percentage of African Americans who lived in poverty was approximately 25 percent.
D)   21 percent and the percentage of African Americans who lived in poverty was approximately 58 percent.E) B) and D)
F) A) and C)

Question 8

A government payment in the form of goods and services rather than money is a(n) :

Accepted Answer

A)   earned income tax credit.
B)   benefit reduction.
C)   noncash transfer.
D)   work incentive.E) All of the above
F) A) and D)

Question 9

The Earned Income Tax Credit:

Accepted Answer

A)   increases the personal income tax liability of low-income working families.
B)   provides a cash payment to low-income working families if their tax credit exceeds their tax liability.
C)   is designed to make labor force employment less attractive.
D)   was eliminated as part of welfare reform in 1996.E) A) and B)
F) A) and C)

Question 10

A major criticism of the welfare system that led to recent reforms is that welfare payments:

Accepted Answer

A)   encourage overuse of the medical system.
B)   create dependency on government programs.
C)   give strong incentives for people to change jobs.
D)   fail to provide a minimum income for young children.E) B) and D)
F) A) and B)

Question 11

Social Security,Medicare,and unemployment compensation are social insurance programs.

Accepted Answer

A) True 
 B)False

Question 12

The average household income in the United States in 2009 was:

Accepted Answer

A)   $27,876.
B)   $34,231.
C)   $52,025.
D)   $67,570.E) All of the above
F) A) and B)

Question 13

Which is a cause of growing income inequality in the United States in the last decade?

Accepted Answer

A)   Competition in exporting to other countries among several major industries
B)   Industrial restructuring from services to goods production
C)   A widening wage gap between skilled and unskilled workers
D)   An increase in the progressivity of the federal tax systemE) None of the above
F) All of the above

Question 14

Public assistance programs provide benefits for those who are unable to earn income because of permanent disabilities,or have no or very low income and also have dependent children.

Accepted Answer

A) True 
 B)False

Question 15

Refer to the above table.The rise in percentage of income received from before taxes and transfers to after taxes and transfers is greatest for the:

Accepted Answer

A)   lowest 20 percent of households.
B)   third 20 percent of households.
C)   fourth 20 percent of households.
D)   highest 20 percent of households.E) B) and D)
F) C) and D)

Question 16

The distribution of income in the United States after taxes and transfers are taken into account is less equal than it is before taxes and transfers are taken into account.

Accepted Answer

A) True 
 B)False

Question 17

The basic argument for income inequality is that it is necessary if consumer satisfaction (utility)is to be maximized.

Accepted Answer

A) True 
 B)False

Question 18

Under a guaranteed minimum annual income plan,if the minimum income level is $5000 with a benefit-reduction rate of 50 percent,and if a family had earnings of $4000,it would receive annual transfer payments of:

Accepted Answer

A)   $1000.
B)   $3000.
C)   $5000.
D)   $7000.The family is guaranteed an income of $5000.If the family made $4000,it would have 50 percent of the earned income taken away.The annual transfer payment is $5000 - $2000 = $3000.E) B) and D)
F) B) and C)

Question 19

A flow of wages and salary earnings,along with rent,interest,and profits,is:

Accepted Answer

A)   wealth.
B)   income.
C)   transfers.
D)   utility.E) A) and D)
F) A) and B)

Question 20

The difference between the 45-degree line and the Lorenz curve shows the:

Accepted Answer

A)   inflationary gap.
B)   recessionary gap.
C)   number of households that are classified as being poor.
D)   degree of income inequality.E) A) and D)
F) A) and C)

Exam 11: Income Inequality and Poverty

Public assistance programs provide benefits for those who are unable to earn income because of permanent disabilities,or have no or very low income and also have dependent children.

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Which is a cause of growing income inequality in the United States in the last decade?

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The basic argument for income inequality is that it is necessary if consumer satisfaction (utility)is to be maximized.

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The Earned Income Tax Credit:

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The average household income in the United States in 2009 was:

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Greater income equality that is achieved through the redistribution of income is thought to:

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Recent government statistics indicate that about 20 percent of the nation lives in poverty.

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Refer to the above graph.If a curve shifted from (d) to (b) ,then the Gini ratio would:

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Social Security,Medicare,and unemployment compensation are social insurance programs.

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The difference between the 45-degree line and the Lorenz curve shows the:

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Refer to the above graph.A nation that has an income distribution of perfect equality would be represented by the above curve:

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A major criticism of the welfare system that led to recent reforms is that welfare payments:

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The distribution of income in the United States after taxes and transfers are taken into account is less equal than it is before taxes and transfers are taken into account.

Correct AnswerverifiedShow Answer

A government payment in the form of goods and services rather than money is a(n) :

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Social insurance is distinguished from public assistance,or welfare,by the fact that:

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Refer to the above table.The rise in percentage of income received from before taxes and transfers to after taxes and transfers is greatest for the:

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Under a guaranteed minimum annual income plan,if the minimum income level is $5000 with a benefit-reduction rate of 50 percent,and if a family had earnings of $4000,it would receive annual transfer payments of:

Correct AnswerverifiedShow Answer

A flow of wages and salary earnings,along with rent,interest,and profits,is:

Correct AnswerverifiedShow Answer

The benefit-reduction rate is the rate at which government benefits increase as the earned income of a family increases.

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In 2009,the percentage of the total population that lived in poverty was approximately:

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