Chapter 3

what can you say about the work experience of the poor? How does it compare to the non-poor? How does work experience differ between two parent and female-headed families?

A high percentage of poor family heads worked during the year; however, it is a lower percentage than that of non-poor family heads. A higher percentage of two-parent families worked compared to female-headed families, with a bigger difference for the poor

what groups have above average poverty rates? What groups have below average poverty rates?

Above-average poverty rates: Blacks, Hispanics, Single-parent families, people under age 18, non-citizens. Below average poverty rates: Whites, Asians, Two-parent families, people over age 65, native born and naturalized citizens.

There have been many criticisms of the government's measure of poverty. List and briefly explain five criticisms. Indicate if each "deficiency" causes the official poverty numbers to be overstated or understated

Criticisms: ignores changes to the standard of living and family structure (understates); today poor people spend less than one-third of their budget on food, suggesting the multiplier applied to the food budget to get to the poverty line should be more than three (understates); ignores assets (overstates); people under report income (overstates); ignores in-kind assistance (overstates); time horizon is too short (overstates); homeless, poor people living with non-poor relatives, and those institutionalized are excluded from the survey (understates)

A person who is not working, but actively seeking employment, is considered to be out of the labor force.

False

In principle, a list of absolute necessities should change regularly over time

False

Individual families exhibit remarkable year-to-year stability in income.

False

Less than half of female-headed poor families are active in the labor market.

False

Most Americans believe that families really could get by on the government's definition of minimum needs if they tried hard.

False

Only one out of five families that fall into poverty in one year are out of poverty in the following year.

False

People over age 65 have higher poverty rates than those under age 18.

False

Since income distribution and poverty are intrinsically related, they cannot be approached separately

False

Since the specification of a poverty standard is an imprecise endeavor, it is a useless exercise

False

The official government measure of poverty uses the relative approach to defining poverty

False

The official poverty measurements include a family's "in-kind" income.

False

The poverty estimates include an imputation for the homeless.

False

The poverty line was originally determined by taking the cost of a minimal food budget for a family and multiplying by 2.

False

The region of the U.S. with the highest poverty rate is the Midwest.

False

There is a firm basis for specifying what a family's minimum needs are

False

Under Roosevelt's definition, poverty has remained about the same since 1936.

False

Define "median" income and "mean (average)" income

Median is the middle observation; half of the numbers are higher, half are lower. The mean is determined by summing all incomes and dividing by the number of units of observation. Some extremely high incomes will pull up the mean but not affect the median.

Is a dollar's worth of food stamps as valuable as a dollar's worth of cash?

No. Cash can be spent on anything; food stamps must only be spent on food

Does the official government measure of poverty use the absolute or relative approach to defining poverty? Explain the differences in these two approaches

The official measure uses the absolute approach. An absolute measure draws a line; each consumer unit is either below the line (poor) or above the line (not poor). The line represents the income necessary to purchase a minimum level of food, clothing, shelter, etc. The other approach defines poverty relative to a standard (say below 50% of mean income or in the lowest 10% of incomes).

Explain why the poverty rate for persons did not rise as rapidly as did the number of poor persons from 1989 to 1993

The poverty rate is number of poor divided by the population. Since population rose from 1989 to 1993, the poverty rate did not go up by as much as the number of poor did.

With a poverty gap in 2005 of about $118 billion, a cash transfer of this amount to the poor would have eliminated poverty. Do you agree?

There are many causes for poverty. The effect (symptom) is having income below the poverty line. While the symptom could be eliminated by sufficient income transfer, the causes would not go away

Fuchs has suggested defining poverty as income below one-half of the national median

True

It is possible for the poverty rate to decline even if the number of poor people increases

True

Not all in-kind transfers represent an improved standard of living

True

One problem with the absolute approach to poverty is that there is no agreement as to which goods and services to include in the definition.

True

The best single indicator of a person's purchasing power over time is income.

True

The latent poor are not included in the official poverty count as poor.

True

The poverty line is updated each year for rising prices but not for increasing standards of living.

True

There are more poor whites than poor blacks in the U.S.

True

There were more poor people in America in 2005 than there were in 1965.

True

Under some relative definitions, poverty will persist as long as income inequality does

True

a) How was the poverty line for a family of a given size originally set? b) Does the line change each year? If so, for what reason(s)?

a. The line was set at the cost of a minimally adequate food budget, times three. b. Yes, the line changes by the rate of inflation each year