Inequality and Redistribution

Assume that a country with total income of $160,000 has a population of 10 households whose incomes are listed in Table: Income of Households.What percentage of income is earned by the bottom quintile of the population?

2%

How does the law of diminishing marginal utility relate to changing income?

The marginal benefit of an extra dollar of income falls as income rises

Which of the following is NOT a reason that the impact of the U.S. federal tax system is less progressive than the income tax rate schedule implies?

The poor pay a higher tax rate than those with higher incomes

When eligibility for a government program is based on income and sometimes on wealth, the program is classified as_____ program.

a means-tested

The concept of diminishing marginal utility means that an additional dollar of income will yield ____ marginal benefit compared to the previous dollar of extra income

less

Differences in consumer spending tend to vary _____ differences in income.

less than

The global extreme poverty line of $1.90 per day is:

lower than the U.S. poverty line

The poverty rate is the:

percent of people whose family income is below the poverty line

Which of the following is NOT a cost of the redistribution of income?

reduced marginal benefits to extra income

The well-being score for Marcella (income $22,000) is 6.5, and the well-being score for Mariko (income $180,000) is 10.2. Across the two of them, total well-being is 16.7. The change in well-being for a $5,000 change in income for Marcella is .5 and for Mariko is .2. What net change in total well-being will occur if $5,000 of Mariko's income is taken as tax and transferred to Marcella through an income transfer?

total well-being will rise to 17 for a net gain of .3

Pedro is a single father who earns $18,000 per year. He receives $3,600 per year in in-kind transfers and a $1,200 earned income tax credit. If his earned income rises to $24,000, he will lose the tax credit and $800 of his in-kind transfer benefits. What is Pedro's effective marginal tax rate?

33.3%

Which of the following taxes is regressive? Raj pays a 10% tax on the first $10,000 he earns plus a ____ tax on any additional income.

5%

Data from the World Bank for the top and bottom quintiles of the distribution of income in Costa Rica for two years are presented in Table: Costa Rica Income Distribution, Top and Bottom Quintiles.Which of the following claims CANNOT be made conclusively for the time period based on the data in the table?

Average income in the bottom quantile was lower in 2016 than it was in 1986

Table: Income Distribution in Four Countries provides recent data from the World Bank on the distribution of income in four countries.Based on the data, the country with the distribution of income that is closest to equal is:

Bangladesh

Which of the following statements is true regarding views of what is "fair"?

Everyone tends to agree that things should be fair, but everyone does not agree on exactly what is fair

Which of the following is NOT one of the three questions that should guide discussions and policies related to the distribution of income that were presented in the chapter?

How long will it take to redistribute income?

Which of the following statements describes a poverty line based on absolute poverty?

Income is below $5 per day per person in the household

_____ is often used as a measure of the equality or inequality of opportunity rather than using equality or inequality of outcomes.

Intergenerational mobility

Use the World Bank data in Table: Costa Rica Distribution of Income, 1986 and 2016 to determine what happened to the distribution of income in Costa Rica over the time period 1986 to 2016.

It became more unequal

What is a progressive tax system?

It is a system where those with more income pay a higher share of their income in taxes than those with lower incomes

What is social insurance?

It is government-provided financial funding to households to compensate for bad outcomes such as unemployment, illness, disability, or outliving their savings.

In which of the following situations would 100 people in poverty in a country be LEAST worrisome to policymakers?

Most of the poor have incomes just barely below the poverty line

In the United States, most social insurance programs are funded by taxes that are:

NOT progressive

Which of the following statements is NOT correct for the United States?

People of color are less likely than others to experience poverty

With regard to income redistribution, what is the trade-off between efficiency and equality?

Redistributing incomes reduces work incentives, leading to lower average income and other costs associated with redistribution

Which of the following is NOT a means-tested social safety net program in the United States?

Social Security

In the United States, the social insurance programs do NOT meet which of the following criteria?

They are means-tested

Table: Average Income and Distribution of Income Data provides recent data from the World Bank on average income and the distribution of income in four countries.Based on the data in the table, those in the bottom quintile have the lowest average income in which country?

Uganda

Which of the following is NOT a correct rationale about why income redistribution programs do not always reduce efficiency?

When incomes are more equal, work incentive grows.

Which of the following is a negative result of redistributing income toward equality?

Work incentives are reduced

Survey data for Americans are illustrated in a graph with the average level of well-being reported ( on the vertical axis ) at each level of income ( on the horizontal axis ). The slope of this curve indicates the relationship between well-being and income is consistent with ____ marginal benefit for additional income.

a diminishing

When eligibility for a government program is based on income and sometimes wealth, the program is classified as _____ program.

a means-tested

Data comparing people's reported level of well-being to their income in the United States show:

a positive or direct relationship between well-being and income

Rachelle is considered poor because her income is in the bottom quintile of the population. Marcella is considered poor because her income is below a long-standing poverty line of $10,000. Rachelle is considered to be in poverty under _____ poverty standard, and Marcella is considered to be in poverty under _____ poverty standard.

a relative; an absolute

Otto and Marta live in a nation with a 15% poverty rate. Their household income is sufficient to pay for food, shelter, and basic needs with some funds available for other things their family wants. However, their household income is lower than 75% of the households in their nation. Otto believes that they are prosperous and not poor, but Marta believes that they are poor. Otto is defining poverty in _____ terms, and Marta is defining poverty in _____ terms.

absolute; relative

When there is a high level of intergenerational mobility among the poor in a nation:

children of poor parents do not remain in poverty when they are adults

Focusing on differences in the amount people actually spend on goods and services as a measure of their material well-being rather than comparing their current incomes leads to a focus on _____ in discussions of the level of economic inequality acrosshouseholds.

consumption

Table: Average Income and Distribution of Income Data provides data on average income and the distribution of income in four countries.According to the data in the table, which country has the largest dollar gap between the average income of those in the top and bottom quintiles?

country D

Government programs that are "means-tested" require:

eligibility to be based on income and sometimes on wealth

The views of fairness discussed in the chapter do NOT include:

equal innate abilities

The costs of the redistribution of income include each of the following EXCEPT:

higher prices for goods and services

When the definition of poverty focuses on relative poverty, a person is in poverty if the household income is:

in the bottom 10% of household incomes in the nation

A difference between a means-tested government social safety net program and a government social insurance program is that means-tested social safety net benefits are available based on _____ while social insurance benefits are available to those who_____.

low income; experience specified negative outcomes

Data for the United States show that poverty is not evenly distributed across groups in the population. Which of the following groups has the LOWEST poverty rate?

married couples

The relationship between efficiency and equality is ____ when incomes are redistributed.

negative

In the field of economics, the observation that the living standard of a household is more stable than its income, because people think in terms of their long-term earnings as they spend, is known as:

permanent income versus current income

A system where high-income households pay a higher share of their income in taxes than those with lower incomes is known as a:

progressive tax system

Social safety nets, social insurance programs, and progressive tax systems are all types of income ____ programs that have the impact of moving income distribution ____ equality

redistribution; closer to

If a poverty line is set at a third of the median household income in a country, the poverty line is based on a _____ poverty standard.

relative

Data on the distribution of income for the United States show that from 1970 through 2014, the share of income earned by the top quantile _____, and the share earned by the bottom quantile ______.

rose; fell

Government-provided financial funding to households to compensate for bad outcomes such as unemployment, illness, disability, or outliving your savings is known as a:

social insurance system

The cash-assistance, goods, and services provided by the government to better the lives of those at the bottom of the income distribution are known as the:

social safety net

Which of the following is a social insurance program in the United States?

social security

Government social insurance programs are funded by:

taxes and fees that are assessed on workers and employers specifically for each program

Intergenerational mobility is the extent to which:

the economic status of children is independent of the economic status of their parents

Which of the following is not one of the four key reasons that the government provides in-kind benefits rather than cash benefits?

In-kind benefits give the recipient the greatest flexibility to choose what matters most

The United Nations and the World Bank use poverty lines that are based on:

an absolute poverty measure

A progressive tax system is designed so that:

as a person's income rises, a higher tax rate is paid on the extra dollars that are earned

Permanent income is a person's:

average income over their lifetime

What is the basis for the income level that the U.S. government uses as the poverty line?

the value of a low-cost food plan multiplied by three, updated annually for inflation

What is a social safety net?

It is the cash-assistance, goods, and services provided by the government to better the lives of those at the bottom of the income distribution

Social insurance programs do NOT:

use a means test to qualify people for benefits

The political philosophy that government should try to maximize total utility in society is known by the term:

utilitarianism

Across demographic groups in the U.S. population, the poverty rate:

varies by race/ethnicity, family structure, and employment.

Table: Average Income and Distribution of Income Data provides recent data from the World Bank on average income and the distribution of income in four countries.According to the data in the table, which statement is correct regarding the situations of Sri Lanka and Mongolia?

Average income in the bottom quintile is higher in Mongolia than in Sri Lanka

According to diminishing marginal utility, which of the following people would gain the highest marginal benefit from an extra $100 of income?

Julia, a single mother of three young children with an annual household income of $18,000

Which of the following gifts is most like an income transfer rather than an in-kind transfer?

a gift card branded through one of the main credit card companies