Microeconomics Chapter 18

Which age group benefits the most from income redistribution in the U.S.? A. 65 and over B. Under age 18 C. 18-35 D> 36-64

A. 65 and over Sixty percent of Americans 65 or older rely on Social Security for more than half of their income.

Which U.S. president declared a "war on poverty"? A. President Lyndon B. Johnson B. President John F. Kennedy C. President Gerald Ford D. President Bill Clinton

A. President Lyndon B. Johnson President Johnson declared a war on poverty in 1964, when the U.S. poverty rate was about 20 percent.

The tendency for the healthiest people to be least likely to buy private health insurance is known as A. adverse selection. B. preferential selection. C. healthy activity bias. D. customer preference.

A. adverse selection. This tendency can lead to outcomes in which very few people will buy insurance.

Since 1960, the U.S. poverty rate A. initially fell, and then fluctuated up and down with no clear trend. B. has increased steadily. C. has remained unchanged. D. has fallen steadily.

A. initially fell, and then fluctuated up and down with no clear trend. The persistence of poverty leads us to ask questions about the evidence on income mobility.

The poverty rate is A. the percentage of the population living below the poverty threshold. B. the growth rate of the population in poverty. C. the rate of increase in the minimum wage. D. the share of total national income received by the poorest 20 percent of the population.

A. the percentage of the population living below the poverty threshold. The 2009 poverty rate was higher than it was in 1967.

The Gini coefficient is a measure of A. the size of government transfers. B. income inequality. C. the size of the welfare state. D. labor mobility.

B. income inequality. The Gini coefficient can range between 0 and 1.

The Great Compression refers to A. the downward pressure on wages for low-skilled workers. B. the narrowing of inequality during World War II. C. the constant budget pressures felt by low-income households. D. the downward pressure on wages resulting from higher costs for employer-provided health insurance.

B. the narrowing of inequality during World War II. Even following the conclusion of the war, income equality persisted for a few decades.

What is the maximum value of the Gini coefficient? A. 100 B. 10 C. 1 D. .5

C. 1 This would mean that one person or one household has all of the income.

The three largest government transfer programs in the United States are A. Temporary Assistance for Needy Families, unemployment insurance, and food stamps. B. the Earned Income Tax Credit, food stamps, and Medicare. C. Social Security, Medicaid, and Medicare. D. Temporary Assistance for Needy Families, Social Security, and the Earned Income Tax Credit

C. Social Security, Medicaid, and Medicare. Together, these three programs account for more than $1.6 trillion in annual spending.

Social Security is financed by A. an estate tax. B. a sales tax. C. a payroll tax. D. a property tax.

C. a payroll tax. Workers and employers each contribute a portion of the tax.

Medicare is available to A. all Americans beneath the poverty threshold. B. all Americans 50 and older, regardless of income. C. all Americans 65 and older, regardless of income. D. all retired Americans, regardless of age.

C. all Americans 65 and older, regardless of income. Medicare is intended to provide health care for retired people, regardless of their ability to pay.

A means-tested program is one for which A. benefits are available only to single-parent families. B. only in-kind benefits are paid. C. benefits are available only to families or individuals whose income falls below a certain level. D. benefits are paid for only one year to any one recipient.

C. benefits are available only to families or individuals whose income falls below a certain level. Temporary Assistance for Needy Families is an example of a means-tested program.

The welfare state is the A. set of state government programs intended to provide job training. B. collection of all government social programs. C. collection of government programs designed to alleviate economic hardship. D. set of federal government programs providing financial assistance for college education.

C. collection of government programs designed to alleviate economic hardship. This includes aid to the poor, the unemployed, and the elderly.

The programs of the welfare state are intended to alleviate A. the need for job training. B. economic recessions. C. economic insecurity and income inequality. D. the need for an education.

C. economic insecurity and income inequality. These motivations underlie the logic of the welfare state.

Which of the following statements about employment-based health insurance is FALSE? A. Employment-based health insurance creates a way for healthy employees to subsidize employees with higher medical expenses. B. Employment-based health insurance is a way of overcoming adverse selection. C. Employment-based health insurance receives favorable tax treatment. D. Employment-based health insurance is made available to all workers, even after retirement.

D. Employment-based health insurance is made available to all workers, even after retirement. Not all employers offer health insurance, and typically these benefits do not continue into retirement.

A government payment to an individual or family is known as A. a government bonus. B. a security voucher. C. a government guarantee. D. a government transfer.

D. a government transfer. Transfer payments are made on the basis of need, not in exchange for a service performed for the government.

Median household income A. is the income required to support a family of four. B. is the total income of all U.S. households divided by the number of households. C. is the most frequently observed income level. D. is the income of the household in the exact middle of the income distribution.

D. is the income of the household in the exact middle of the income distribution. If there are a handful of households with extremely high incomes, the mean income will exceed the median.

Which of these four countries has the highest Gini coefficient? A. Canada B. Sweden C. Australia D. the United States

D. the United States Among wealthy nations, the United States has a fairly high degree of income inequality.

Suppose as part of welfare reform, the state of Oregon wants to encourage employers to hire welfare recipients who are now required to work in order to receive their benefits. Employers are offered a subsidy for every welfare recipient they hire. Part 1: The figure below shows the market for welfare recipient labor before the subsidy is imposed. Use the copy tool to show the impact of this subsidy on the market for welfare recipient labor. Label the new curve(s) drawn D2 and/or S2. Part 2: Assume that wages and employment before the subsidy are at point E. Use the drop line tool to show what happens to the equilibrium wage and employment because of the subsidy. Label the new point E2.

The effect of the subsidy is to increase the demand for labor because the subsidy reduces the cost to the employer of hiring someone. You should illustrate this by drawing a new demand curve to the right of the original curve and labeling it D2. There is no change to supply. The new equilibrium is at the intersection of the new demand curve and the existing supply curve; label it E2. Notice that at the new equilibrium the wage is higher and the number of employed is larger. For more information on welfare reform, re-read Chapter 18; Section: The U.S. Welfare State.

In the 1990's welfare reform was enacted. It required those already receiving benefits to find jobs in order to continue to be eligible to receive welfare benefits. As a result, many single mothers were forced to find jobs. For the most part, these single mothers entered the market for unskilled labor. Part 1: The figure below shows the market for unskilled labor before the welfare reform. Use the copy tool to show the impact of this welfare reform on the market for unskilled labor. Label the new curve(s) drawn D2 and/or S2. Part 2: Assume that wages and employment before the reform are at point E. Use the drop line tool to show what happens to wages and to the employment of unskilled labor after the welfare reform. Label this new point E2.

The effect of the welfare reform was to increase the supply of labor. You should illustrate this by using the copy tool to add a new labor supply curve to the right of the original curve. Label that S2. There is no change to the demand for labor. The intersection of the new S2 curve and the original demand for labor curve is the new labor market equilibrium, which you should label as point E2. Notice that the wage is lower and the amount of labor employed is larger. For more information on welfare reform, re-read Chapter 18; Section: The U.S. Welfare State.