chapter 14

Briefly discuss the various aspects of the poverty trap.

A poverty trap occurs when government-support payments for the poor decline as the poor earn more income. As a result, the poor do not end up with much more income when they work, because the loss of government support largely or completely offsets any income that is earned by working. The bite of the poverty trap can be reduced by phasing out government benefits more slowly, as well as by imposing requirements for work as a condition of receiving benefits and a time limit on benefits.

Paddy has lots of cousins. With a family reunion in the near future, Paddy decides to collect income information for himself and all his cousins. He obtains the following data points: $52,000, $22,000, $92,000, $8,000, $118,000, $62,000, $38,000, $14,000, $132,000, $46,000, $26,000, $96,000, $54,000, $110,000, $80,000. The share of income received by the second-to-bottom quintile of this income distribution is

A. 11.6%

Paddy has lots of cousins. With a family reunion in the near future, Paddy decides to collect income information for himself and all his cousins. He obtains the following data points: $52,000, $22,000, $92,000, $8,000, $118,000, $62,000, $38,000, $14,000, $132,000, $46,000, $26,000, $96,000, $54,000, $110,000, $80,000. The share of income received by the highest quintile of this income distribution is ______, which is _____ than that for the highest quintile of the U.S. income distribution in 2005.

A. 37.9% lower

In the United States, the official definition of the poverty line traces back to a single person: ___________________, whose idea was to ___________________________.

A. Mollie Orshansky; define a poverty line based on the cost of a healthy diet

Poverty is measured by the number of people who fall below

A. a certain level of income. B. the income needed for a basic standard of living. C. the nation's economic poverty line. D. all the above are correct.

The greater inequality of wages can be viewed as a sign that

A. demand for skilled labor is increasing faster than supply.

In the U.S., poverty rates are relatively low

A. for the elderly B. for the well-educated C. for the male-headed households D. for whites and all of the above

Lesley is a single mother with 2 children. She can earn $10 per hour and can work up to 1,800 hours per year. However, if she does not earn any income at all, she will receive government benefits totaling $18,000 per year. For every $1 of income she earns, her level of government support is reduced by $1. Lesley

A. has no monetary incentive to work, though she may still choose to work

In the U.S., comparisons of high and low incomes raise issues of economic ______________________.

A. inequality and poverty

Antipoverty programs that are set up so that the amount of government benefits will decline substantially as poor people earn more income typically create ______________.

A. poverty trap

The group of government programs that provide assistance to the poor and the near-poor is synonymous with which of the following?

A. safety net

Which of the following is a key requirement imposed under the Welfare Reform Act's new antipoverty program?

A. states receiving TANF grants must impose work or school attendance requirements

A government has decided to phase out its antipoverty program support payments more slowly to help the near-poor become self-sufficient. One criticism about this policy is likely to be

A. that this antipoverty program costs the government more money.

Medicaid is a federal-state joint program enacted in 1965 that provides medical insurance for

A. the near-poor and the low-income elderly.

If incomes rise for low-income workers but don't change for high-income workers,

A. then poverty will fall and inequality will fall.

If a rise in incomes for both low-income and high-income workers is higher for the high-income workers,

A. then poverty will fall and inequality will rise.

One common way of measuring income inequality is to rank all households by income, from lowest to highest, and then

A. to divide all households into quintiles.

Economic inequality compares the share of the ____________ in society that is received by different groups; such as comparing the share of income received by the _________ to the share of income received by the _____________ .

A. total wealth; top 10%; bottom 10% B. answers a and c are correct. C. total income; bottom 10%; top 10%

Bruce is a single father with 1 child. He can work as a bagger at the local grocery store for $6 per hour up to 1,200 hours per year. He is eligible for welfare, and if he does not earn any income, he will receive $15,000 a year. If Bruce works, the government policy is to deduct 60 cents from his welfare stipend for every $1 that he earns in income. With this policy in place, if Bruce works 600 hours, his income will be

B. $16440

A group of 10 golfing buddies have the following annual incomes: $32,000, $12,000, $56,000, $120,000, $10,000, $38,000, $70,000, $16,000, $20,000, $24,000. The share of income received by the bottom quintile of this income distribution is

B. 5.5%

To address a common poverty trap problem for many low-paid Americans whose jobs pay enough that a family could lose its eligibility for____________ , yet those jobs don't offer ______________________ either, some states guaranteed that children would not loose their coverage if their parents worked.

B. Medicaid; health insurance benefits

A government program guarantees $18,000 in income, even for those who do not work at all. If the recipient earns income by working, then the $18,000 benefit is reduced by 50 cents for each $1 earned. Will this program eliminate the poverty trap?

B. No, enacting such a program may still reduce the incentive to work.

Under which of the following antipoverty programs does the federal government give a fixed amount of money to each state?

B. TANF

Government developed a method called __________________ to assist the working poor through the tax system. The amount of the tax break ____________ with the amount of income earned, ________________ .

B. earned income credit; increases; up to a point

If the 2014 poverty line is based on the amount of money an individual has earned as income, then

B. government programs that provide non-cash assistance to the poor are not considered.

Suppose that new high-technology farming equipment is developed. These new machines are substitutes for low-income workers such as farm laborers, but they are complements for high-income workers such as farm technicians and farm owners. This new technology will ______ employment and _____ wages for high-income workers.

B. increase, increase

A situation of __________ arises when one group receives a higher share of total income or wealth than others.

B. inequality

Suppose that new high-technology farming equipment is developed. These new machines are substitutes for low-income workers such as farm laborers, but they are complements for high-income workers such as farm technicians and farm owners. This new technology will shift the demand curve for low-income workers to the ______ while shifting the demand curve for high-income workers to the _____.

B. left, right

A method often used by economists to look at distribution of income in a society's economy involves

B. quintiles, or dividing a whole group into fifths.

Every Lorenz curve diagram begins with a line __________________ .

B. sloping up at a 45-degree angle

If the level of incomes rises for high-income workers but doesn't change for low-income workers,

B. then poverty will not change and inequality will rise.

In the U.S., government support programs that are focused specifically on the poor include which of the following?

B. welfare

Lance is a single father with 1 child. He can work as a bagger at the local grocery store for $6 per hour up to 1,200 hours per year. He is eligible for welfare, and if he does not earn any income, he will receive $15,000 a year. If Lance works, the government policy is to deduct 60 cents from his welfare stipend for every $1 that he earns in income. When Lance works 1,200 hours, he receives _______ in government support and his total income is _______.

C. $10,680, $17,880

In the framework of a Lorenz curve, the final entry in the cumulative income column needs to be _________.

C. 100%

A group of 10 golfing buddies have the following annual incomes: $32,000, $12,000, $56,000, $120,000, $10,000, $38,000, $70,000, $16,000, $20,000, $24,000. The share of income received by the third quintile of this income distribution is

C. 14.1%

Paddy has lots of cousins. With a family reunion in the near future, Paddy decides to collect income information for himself and all his cousins. He obtains the following data points: $52,000, $22,000, $92,000, $8,000, $118,000, $62,000, $38,000, $14,000, $132,000, $46,000, $26,000, $96,000, $54,000, $110,000, $80,000. The share of income received by the bottom quintile of this income distribution is _____, which is ______ than that for the bottom quintile of the U.S. income distribution in 2005.

C. 4.6% higher

______________ allows the government to collect wealth for redistribution based on the amount of stored wealth that is being passed on in the form of an inheritance.

C. An estate tax

The concept of a poverty line raises a number of complex questions. Which of the following represents such a question?

C. Should the national poverty line be applied in all states?

_________________ is the level where half of all families had more than that level and half had less

C. The median

From the Great Depression of the 1930s until 1996, the United States' most visible antipoverty program was Aid to Families with Dependent Children, which provided cash payments to

C. all mothers with children who were below the poverty line.

A Lorenz curve graphs the _________________ received by everyone up to a certain quintile.

C. cumulative shares of income

The food stamp benefit

C. has time limits and is not a complete disincentive to work.

If the poverty trap were made even more difficult to overcome because a working mother will have extra expenses like transportation and child care that a nonworking mother will not face, then

C. her economic gains from working will be even smaller.

Measuring economic inequality involves comparing those with ________________ .

C. high incomes middle incomes, and low incomes

A Lorenz curve refers to a graphic illustration of the share of population on the _______________ and the cumulative percentage of total income received on the __________________ .

C. horizontal axis; vertical axis

An individual whose income level is just above the poverty line would most likely be classified as being a member of the _____________ .

C. near-poor

If a rise in incomes is the same proportion for both low-income and high-income workers,

C. then poverty will fall and inequality will remain unchanged.

Under which of the following government programs would the federal government's welfare spending rise or fall depending on the number of poor people, and on how each state set its own welfare contribution?

D. AFDC

Which of the following is a safety net that could provide a decent standard of living and/or incentives to work?

D. Supplemental Security Income and the above

Tim is a single father with 1 child. He can work as a bagger at the local grocery store for $6 per hour up to 1,200 hours per year. He is eligible for welfare, and if he does not earn any income, he will receive $15,000 a year. If Tim works, the government policy is to deduct 60 cents from his welfare stipend for every $1 that he earns in income. This government policy provides a monetary incentive to work, because

D. Tim's income level increases the more he works

There seems to be little evidence that poor families experienced _______________ as a result of ____________ .

D. a reduced standard of living; TANF

Suppose that new high-technology farming equipment is developed. These new machines are substitutes for low-income workers such as farm laborers, but they are complements for high-income workers such as farm technicians and farm owners. This new technology will _____ wages in for low-income workers and _____ income inequality.

D. decrease, increase

Suppose that the government implements a new policy that provides free skills training to all low-skilled workers, which makes them more productive and turns them into high-skilled workers. This will ______ the supply of low-skilled workers and ______ the supply of high-skilled workers.

D. decrease, increase

Why did inequality of household income increase in the United States in recent decades?

D. demand for high-skilled labor at higher wages increased and b and c

The trick in graphing a Lorenz curve is that you must transform the shares of income ________________, which are shown in the first column of numbers in the table, into ___________, shown in the ________ column of numbers.

D. for each specific quintile; cumulative income; second

A group of 10 golfing buddies have the following annual incomes: $32,000, $12,000, $56,000, $120,000, $10,000, $38,000, $70,000, $16,000, $20,000, $24,000. The share of income received by the lowest quintile of this income distribution is _______ than that for the bottom quintile of the U.S. income distribution in 2005. The share of income received by the highest quintile of this income distribution is _______ than that for the highest quintile of the U.S. income distribution in 2005.

D. higher; lower

Crystal is a single mother with 2 children. She can earn $10 per hour and can work up to 1,800 hours per year. However, if she does not earn any income at all, she will receive government benefits totaling $18,000 per year. For every $1 of income she earns, her level of government support is reduced by $1. Crystal's labor-leisure opportunity set

D. is larger with the government support program

How does being caught in a poverty tap affect an individual's future job prospects?

D. it creates the outcomes presented in both a and b

One reason that the welfare reform bill TANF worked as well as it did is that

D. its worth about $2,500 per family with children and all of the above.

With respect to market forces and/or labor markets that determine peoples' wages, which of the following is a true statement?

D. labor markets create considerable inequalities relating to income

When reference is made to the ____________, it means the specific amount of income needed for a basic standard of living.

D. poverty line

In circumstances dealing with poverty, the term ______________ means taking income from those with higher incomes and providing income to those with lower incomes.

D. redistribution

If a society decides to reduce the level of economic inequality, which of the following sets of tools can it use?

D. the three mains sets of tools it can use include all of the above

If Congress voted every few years to redefine completely what poverty means,

D. then it would be difficult to compare poverty rates over time.

If incomes rise for both low-income and high-income workers, but rise less for the high-income workers,

D. then poverty will fall and inequality will fall.

If the income level falls for low-income workers, but remains unchanged for high-income workers,

D. then poverty will rise and inequality will rise.

Robert is a widower raising 5 year old twin boys. In 2013, after the plant where he had worked for 10 years shut down, he was able to obtain part-time work that paid him $13,000.00 a year. He receives the earned income tax credit. If Robert receives a raise, so that he will earn $16,350, the earned income credit will be

D. will not be reduced

Briefly discuss how income inequality in the U.S. has increased from the 1970s into the 2000s, as well as the two most common explanations cited by economists for this change.

Income inequality in the United States increased substantially from the late 1970s or early 1980s into the 2000s. The two most common explanation cited by economists are changes in the structure of households that have led to more two-earner couples and single-parent families, and the effect of new information and communications technology on wages.

Briefly explain how markets determine wages and where this can lead.

Labor markets will determine wages according to demand and supply, which can lead to very low incomes for some people and very high incomes for others.

Briefly discuss what measuring inequality involves, and provide two examples for doing so.

Measuring inequality involves making comparisons across the entire distribution of income, not just the poor. One way of doing this is to divide the population into groups, like quintiles, and then calculate what share of income is received by each group. An alternative approach is to draw Lorenz curves, which compare the cumulative income actually received to a perfectly equal distribution of income.

List three policies that can affect the level of economic inequality.

Policies that can affect the level of economic inequality include redistribution between rich and poor, making it easier for people to climb the ladder of opportunity; and estate taxes, which are taxes on inheritances.

Briefly compare and contrast poverty and economic inequality.

Poverty and economic inequality are not the same thing. Poverty applies to the condition of people who cannot afford the necessities of life. Economic inequality refers to the disparity between those with higher and lower incomes.

Briefly compare and contrast the effects and outcomes of pushing too aggressively and pushing moderately for economic equality.

Pushing too aggressively for economic equality can run the risk of decreasing economic incentives. However, a moderate push for economic equality can increase economic output, both through methods like improved education and by building a base of political support for market forces.

Identify what the groups of government programs that assist the poor are called and provide examples of the prominent programs that are provided in the U.S..

The groups of government programs that assist the poor are called the safety net. In the United States, prominent safety net programs include Temporary Assistance to Needy Families (TANF), the earned income credit (EIC), Medicaid, and Food Stamps.

Briefly discuss what the poverty rate, including what it is, how it is determined, and how this relates to the near poor.

The poverty rate is what percentage of the population lives below the poverty line, which is determined by the amount of income that it takes to purchase the necessities of life. Choosing a poverty line will always be somewhat controversial. The near-poor are those with low incomes who are just above the poverty line.

List at least 5 plausible reasons for a degree of income inequality.

There are a number of plausible reasons for a degree of income inequality: for example, differences in age, differences in preferences, a need for incentives, year-to-year fluctuations, inheritances and luck.