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1、Chapter 20Income Inequality and PovertyTRUE/FALSE1.The poverty line is set by the government so that 10 percent of all families fall below that line and are thereby classified as “poor.”ANS:FDIF:1REF:20-1NAT:AnalyticLOC:The study of economics, and definitions of economicsTOP:Poverty lineMSC:Definiti
2、onal2.The United States has more income inequality than Japan, Germany, and Canada.ANS:TDIF:1REF:20-1NAT:AnalyticLOC:The study of economics, and definitions of economicsTOP:Income inequalityMSC:Definitional3.The United States has more income inequality than Brazil and South Africa.ANS:FDIF:1REF:20-1
3、NAT:AnalyticLOC:The study of economics, and definitions of economicsTOP:Income inequalityMSC:Definitional4.Standard measurements of the degree of income inequality take both money income and in-kind transfers into account.ANS:FDIF:2REF:20-1NAT:AnalyticLOC:The study of economics, and definitions of e
4、conomicsTOP:In-kind transfers | Income inequalityMSC:Definitional5.John Rawls, who developed the way of thinking called liberalism, argued that government policies should be aimed at maximizing the sum of utility of everyone in society.ANS:FDIF:2REF:20-2NAT:AnalyticLOC:The role of governmentTOP:Util
5、ityMSC:Interpretive6.One existing government program that works much like a negative income tax is the Earned Income Tax Credit.ANS:TDIF:2REF:20-3NAT:AnalyticLOC:The role of governmentTOP:Negative income taxMSC:Interpretive7.One existing government program that works much like a negative income tax
6、is Medicaid.ANS:FDIF:2REF:20-3NAT:AnalyticLOC:The role of governmentTOP:Negative income taxMSC:Interpretive8.The invisible hand of the marketplace acts to allocate resources efficiently, but it does not necessarily ensure that resources are allocated fairly.ANS:TDIF:1REF:20-0NAT:AnalyticLOC:Efficien
7、cy and equityTOP:Income inequalityMSC:Applicative9.When the government enacts policies to make the distribution of income more equitable, it distorts incentives, alters behavior, and makes the allocation of resources less efficient.ANS:TDIF:1REF:20-0NAT:AnalyticLOC:The role of governmentTOP:Income i
8、nequalityMSC:Applicative10.In the United States in 2005, the bottom fifth of the income distribution had incomes below $19,250.ANS:FDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Income inequalityMSC:Applicative11.The top 5 percent of U.S. annual family income in 2005 was $184,500 or more.ANS
9、:TDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Income inequalityMSC:Applicative12.A U.S. family earning $80,000 would be in the top 20 percent of income distribution in 2005.ANS:FDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Income inequalityMSC:Applicative13.Free trade and economic
10、 growth have reduced poverty worldwide.ANS:TDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:PovertyMSC:Applicative14.Although globalization has reduced income inequality, the number of people living in extreme poverty has remained unchanged.ANS:FDIF:2REF:20-1NAT:AnalyticLOC:Efficiency and equi
11、tyTOP:PovertyMSC:Interpretive15.The measured poverty rate may not reflect the true extent of economic deprivation because it does not include some forms of government assistance.ANS:TDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Poverty rateMSC:Applicative16.The poverty line is an absolute s
12、tandard and is based on the cost of providing an adequate diet.ANS:TDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Poverty lineMSC:Definitional17.The poverty line is based on the percentage of people who cannot afford an adequate diet.ANS:FDIF:2REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP
13、:Poverty lineMSC:Interpretive18.The poverty rate is a measure of people unable to meet the governments poverty line.ANS:TDIF:2REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Poverty lineMSC:Interpretive19.The elderly represent the largest demographic group in poverty.ANS:FDIF:1REF:20-1NAT:AnalyticL
14、OC:Efficiency and equityTOP:PovertyMSC:Applicative20.About half of black and Hispanic children in female-headed households live in poverty.ANS:TDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:PovertyMSC:Applicative21.The economic life cycle describes how young people usually have higher saving
15、s rates than middle-aged people.ANS:FDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Economic life cycleMSC:Applicative22.Many economists believe that a family bases its spending decisions on its permanent, or average, income rather than on transitory income.ANS:TDIF:1REF:20-1NAT:AnalyticLOC:E
16、fficiency and equityTOP:Economic life cycleMSC:Applicative23.About four out of five millionaires in the United States earned their money rather than inherited it.ANS:TDIF:2REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Economic mobilityMSC:Applicative24.Fewer than three percent of families are poo
17、r for eight or more years.ANS:TDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Economic mobilityMSC:Applicative25.Utilitarians believe that the proper goal of the government is to maximize the sum of the utilities of everyone in society.ANS:TDIF:1REF:20-2NAT:AnalyticLOC:The role of governmentT
18、OP:UtilitarianismMSC:Interpretive26.The utilitarian justification for redistributing income is based on the assumption of diminishing marginal utility.ANS:TDIF:1REF:20-2NAT:AnalyticLOC:The role of governmentTOP:UtilitarianismMSC:Interpretive27.If a government could successfully achieve the maximin c
19、riterion, each member of society would have an equal income.ANS:FDIF:2REF:20-2NAT:AnalyticLOC:The role of governmentTOP:LiberalismMSC:Interpretive28.According to libertarians, the government should redistribute income from rich individuals to poor individuals to achieve a more equal distribution of
20、income.ANS:FDIF:2REF:20-2NAT:AnalyticLOC:The role of governmentTOP:LibertarianismMSC:Interpretive29.Libertarians believe that the government should enforce individual rights to ensure that all people have the same opportunities to use their talents to achieve success.ANS:TDIF:1REF:20-2NAT:AnalyticLO
21、C:The role of governmentTOP:LibertarianismMSC:Interpretive30.The poverty rate is an absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty.ANS:FDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Poverty rate, Poverty lineMSC:Def
22、initional31.An income distribution may not give an accurate picture of families standards of living because it does not include in-kind transfers.ANS:TDIF:2REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Income inequalityMSC:Interpretive32.A goal of libertarians is to provide citizens with equal op
23、portunities rather than to ensure equal outcomes.ANS:TDIF:2REF:20-2NAT:AnalyticLOC:Efficiency and equityTOP:LibertarianismMSC:Interpretive33.Temporary Assistance for Needy Families (TANF) is an example of a negative income tax program.ANS:FDIF:2REF:20-3NAT:AnalyticLOC:Efficiency and equityTOP:Welfar
24、eMSC:Applicative34.When poor families in developing countries experience an increase in family income, their children supply fewer hours of labor.ANS:TDIF:2REF:20-3NAT:AnalyticLOC:Efficiency and equityTOP:Child laborMSC:Applicative35.Education is the most important factor explaining reductions in ch
25、ild labor in Vietnam.ANS:FDIF:2REF:20-3NAT:AnalyticLOC:Labor marketsTOP:Child laborMSC:Applicative36.Internet access is the most important factor explaining reductions in child labor in Vietnam.ANS:FDIF:2REF:20-3NAT:AnalyticLOC:Labor marketsTOP:Child laborMSC:Applicative37.Since 1959 the United Stat
26、es income distribution has become more equal.ANS:FDIF:2REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Income inequalityMSC:Applicative38.In 2005 the top fifth of income earners accounted for over 50% of all income received by United States families.ANS:FDIF:2REF:20-1NAT:AnalyticLOC:Efficiency and
27、equityTOP:Income inequalityMSC:Applicative39.In 2005 the top 5 percent of income earners accounted for over 50% of all income received by United States families.ANS:FDIF:2REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Income inequalityMSC:Applicative40.From 1935 to 2005 the share of total income e
28、arned by the bottom fifth of income earners rose and then fell.ANS:TDIF:2REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Income inequalityMSC:ApplicativeSHORT ANSWER1.Explain the relationship between labor earnings and the distribution of income.ANS:A persons earnings depend on the supply and deman
29、d for that persons labor, which in turn depends on natural ability, human capital, compensating differentials, discrimination, and so on. Because labor earnings make up about three-fourths of the total income in the U.S. economy, the factors that determine wages are also largely responsible for dete
30、rmining how the economys total income is distributed among the various members of society.DIF:1REF:20-0TOP:Income inequalityMSC:Interpretive2.What is meant by a perfectly equal distribution of income? Use a graph to depict such a situation.ANS:If income were equally distributed across all families,
31、each one-fifth of families would receive one-fifth of income. That is, 20 percent of all families would receive 20 percent of all income, 60 percent of all families would receive 60 percent of all income, etc.DIF:2REF:20-1TOP:Income inequalityMSC:Analytical3.Given the table shown, which country has
32、a more equal income distribution? Explain your answer.CountryBottom FifthSecond FifthMiddle FifthFourth FifthTop FifthCountry A9.0%13.5%17.5%22.9%37.1%Country B4.8%10.5%16.0%23.5%45.2%ANS:Country A has a more equal income distribution. If income were equally distributed across all families, each one
33、-fifth of families would receive one-fifth of income. Country A is closer to that situation than Country B.DIF:2REF:20-1TOP:Income inequalityMSC:Interpretive4.Explain what information is contained in the poverty rate statistic. Are there problems in using an absolute scale to measure poverty? If so,
34、 explain them.ANS:The poverty rate is the percentage of the population whose family income falls below an absolute level called the poverty line. The poverty line is set by the federal government at roughly three times the cost of providing an adequate diet. There are several problems associated wit
35、h measuring poverty using an absolute scale. For example, the cost of living may differ across broad geographic regions. Families may be better off than their income level indicates if they receive in-kind transfers. Finally, it is very difficult to measure a true standard of living.DIF:2REF:20-1TOP
36、:Poverty rate | Poverty lineMSC:Analytical5.Compare and contrast the life cycle hypothesis and the permanent income hypothesis. What are their respective implications for inequality in the income distribution?ANS:Life-cycle variation in income suggests that peoples spending patterns vary less over t
37、heir lifetimes than their income patterns. Young people may borrow so that they can spend more than they earn. An example of this would be a young person borrowing to go to college, buy a car, or buy a house. Annual earnings peak around age 50. Not surprisingly, many people save more in middle-age t
38、han at other times in their life. Their savings allow them to pay off the debts incurred when they were younger and to put away money that they will use to supplement their incomes once they retire.The permanent income hypothesis tries to account for random and transitory forces that affect income.
39、People may borrow when they experience a temporary reduction in income and may save unexpected increases in income (e.g. a holiday bonus from an employer). The two theories are not mutually exclusive. Both theories would indicate that standard measures of income distribution overstate inequality in
40、the distribution of well-being.DIF:2REF:20-1TOP:Economic life cycleMSC:Interpretive6.Explain the concept of diminishing marginal utility, and describe the role that it plays in the utilitarian argument for the redistribution of income.ANS:Diminishing marginal utility refers to the principle that as
41、a persons income rises, the extra well-being derived from an additional dollar of income falls. The utilitarian argument of redistribution from rich to poor hinges on the fact that a dollar of additional income to the poor is valued more than a dollar of additional income to the rich. If this is not
42、 true, then the transfer from rich to poor would actually reduce the well-being of society.DIF:2REF:20-2TOP:Diminishing marginal utility | UtilitarianismMSC:Interpretive7.Explain how a leaky bucket can be used to illustrate the utilitarian argument that governments should not attempt to completely e
43、qualize individual incomes.ANS:Utilitarians reject complete equalization of income because they believe that people respond to incentives. As such, redistribution will reduce some peoples work efforts, which can actually lead to less total income generated in the economy. If the government attempts
44、to redistribute income from the rich to the poor through taxes, some of the money will be lost due to the distorted incentives and deadweight losses associated with the taxes. We can think of the government as transporting the redistributed income in a “leaky bucket.”DIF:2REF:20-2TOP:UtilitarianismM
45、SC:Interpretive8.Briefly describe the three prominent schools of thought in political philosophy. Identify one of the most well-known philosophers in each school.ANS:According to utilitarianism, the government should choose policies to maximize the total utility of society by attempting to achieve a
46、 more equal distribution of income. Jeremy Bentham and John Stuart Mill were the founders.According to liberalism, the government should choose policies deemed to be just, as evaluated by an impartial observer behind a veil of ignorance. The main decision-making rule is called the maximin criterion, which says that the government should aim to maximize the well-being of the worst-off person in society. John Rawls developed the liberalism philosophy in
