38 Poverty & Welfare

Who are the 3 main actors in a Circular Flow Diagram?

(1) Households. (2) Firms. (3) Governments.

PICK & CHOOSE Using a poverty line of $12,500, under the current system of calculating the poverty rate, which of the following people is considered in poverty and probably ought not to be? (A?) A rural family whose sole income is from a minimum wage ($10,300) position. (B?) A rural family whose combined income is $15,000. (C?) A New York family whose combined income is $13,000. (D?) A retired couple whose multimillion dollar estate yields them no income.

(D!) A retired couple whose multimillion dollar estate yields them no income.

With Cash Programs for the Poor, why spend $789 Billion on a $96 Billion Problem?

1.) Cash transfers would cost the government less to administer. 2.) Much of the benefit of the Medicaid program goes to children in households just above the poverty line. 3.) Giving cash does not serve the goals of those helping the poor because Americans generally; (1) believe the poor would waste the money, (2) believe the poor would not spend the money on their children. (3) feel better giving people what they need rather than what they like.

To be successful, a social safety net must meet three goals which are?

1.) The program that is designed cannot be so expensive that the taxpaying public will not sustain it. 2.) The program must have an incentive built in that makes beneficiaries want to leave it.Page 408 3.) The program must provide enough of a level of basic necessities that recipients have a socially acceptable standard of living.

FILL IN THE BLANK A number of economists view poverty, or more accurately, the threat of poverty, as a powerful incentive to .

A number of economists view poverty, or more accurately, the threat of poverty, as a powerful incentive to work hard to better oneself.

Define Free Market (Capitalist) Economy:

An economy letting individuals decide what to produce, how to produce it, and who gets it. Let the market do it all being called Capitalism. -Inspired by Adam Smith. He was a Scottish Economist, Philosopher, and Author as well as a Moral Philosopher, a Pioneer of Political Economy, and a Key Figure during the Scottish Enlightenment, also known as ''The Father of Economics'' or ''The Father of Capitalism''.

Define Centrally-Planned (Command) Economy:

An economy where the government owns all the resources, owns the workers, and tells them where they can work, what jobs they should have. -Inspired from Karl Marx Ideologies. He was a German Philosopher, Economist, Historian, Sociologist, Political Theorist, Journalist and Socialist Revolutionary.

FILL IN THE BLANK Anti-poverty programs in the United States .

Anti-poverty programs in the United States are better understood as varying from state to state rather than being one consistent program across the country.

Define Quintile:

Any of five equal groups into which a population can be divided according to the distribution of values of a particular variable. In Economics, a quintile is one of five values that divide a range of data into five equal parts, each being 1/5th (20 percent) of the range. ... Economists often use quintiles to analyze very large data sets, such as the population of the United States.

What is the relationship between Capital Goods & Future Growth?

Countries that produce more capital goods will have more growth in the future.

FILL IN THE BLANK Data from the 1980s through today appears to the premise that poverty (proxied by income inequality) induces hard work (proxied by the rate of economic growth).

Data from the 1980s through today appears to support the premise that poverty (proxied by income inequality) induces hard work (proxied by the rate of economic growth).

PICK & CHOOSE In a simple 300 million-person world of all four-person families, if poverty line is $12,500 and half of the 10 million families (with 40 million poor people) earn $10,000 and the other half earn $7,500, then the poverty gap is . (A?) $125 billion (=10 million * $12,500). (B?) $250 billion (=20 million * $12,500). (C?) $150 billion (=20 million * $2,500 + 20 million * $5,000). (D?) $37.5 billion (=5 million * $2,500 + 5 million * $5,000).

In a simple 300 million-person world of all four-person families, if poverty line is $12,500 and half of the 10 million families (with 40 million poor people) earn $10,000 and the other half earn $7,500, then the poverty gap is $37.5 billion (=5 million * $2,500 + 5 million * $5,000).

PICK & CHOOSE In a simple 300 million-person world of all four-person families, if the poverty line is $12,500 and half of the 10 million families (with 40 million poor people) earn $10,000 and the other half earn $7,500, then the poverty rate is . (A?) 3.33% (10 million/300 million). (B?) 13.33% (40 million/300 million). (C?) 16.66% (50 million/300 million). (D?) 96.33% ([300 million - 10 million]/300 million).

In a simple 300 million-person world of all four-person families, if the poverty line is $12,500 and half of the 10 million families (with 40 million poor people) earn $10,000 and the other half earn $7,500, then the poverty rate is 13.33% (40 million/300 million).

What are In-Kind Transfers? List & describe 5 of them.

In-Kind Transfers: Provisions of goods and services in forms. other than cash. 1.) Women, Infants, and Children (WIC): Vouchers allow people to get basic food products for pregnant women, new mothers, and their children. 2.) SNAP (Food Stamps): Vouchers that enhance the recipients ability to buy food. 3.) Medicaid: Free health insurance. 4.) Section 8 or Housing Authority Housing: Subsidized housing. 5.) Head Start: Subsidized day care and preschool. 6.) School Lunch: Free breakfasts and lunches at school.

FILL IN THE BLANK The assertion that welfare programs encourage the poor to have more children so as to obtain more benefits is by the fact that the benefits are to cover the costs of raising an additional child.

The assertion that welfare programs encourage the poor to have more children so as to obtain more benefits is weakened by the fact that the benefits are only enough to cover the costs of raising an additional child.

FILL IN THE BLANK The determination of the poverty rate excludes non-cash income that households receive and therefore clearly produces an of the extent of poverty.

The determination of the poverty rate excludes non-cash income that households receive and therefore clearly produces an overestimate of the extent of poverty.

PICK & CHOOSE The distribution of aid to the poor between in-kind and in-cash is . (A?) Roughly equal. (B?) Weighted heavily toward in-cash benefits. (C?) Weighted slightly toward in-kind of benefits. (D?) Weighted heavily toward in-kind benefits.

The distribution of aid to the poor between in-kind and in-cash is weighted heavily toward in-kind benefits.

FILL IN THE BLANK The goal of creating a social safety net that holds the support of the taxpaying public is likely to the desire to provide the recipients with a socially acceptable standard of living.

The goal of creating a social safety net that holds the support of the taxpaying public is likely to run counter to the desire to provide the recipients with a socially acceptable standard of living.

With Quintiles, what does it mean if income were distributed equally?

The height of the bars in the histogram would be the same which would show that each quintile would earn 20% of total income for the population. In this case the Lorenz Curve would be a straight diagonal line that extends from the lower left of the upper right corner of the cumulative graph.

FILL IN THE BLANK The majority of programs aimed at helping the poor are the variety.

The majority of programs aimed at helping the poor are the In-Kind variety.

PICK & CHOOSE The measures of poverty that different countries use are .

The measures of poverty that different countries use are varied and not directed comparable.

PICK & CHOOSE The most obvious pattern in poverty rates is the degree to which they are higher during . (A?) Democratic Administrations. (B?) Wars. (C?) Odd Years. (D?) Recessions.

The most obvious pattern in poverty rates is the degree to which they are higher during recessions.

What do points along Production Possibilities Frontier (PPF) represent?

The most of one good that can be produced for a given amount of the other good.

FILL IN THE BLANK The official poverty line adjusted every year based on increases in the cost of living as measured by the CPI. However, given the widely accepted assessment that the CPI. However, given the widely accepted assessment that the CPI overstates living costs, it follows that over the years the poverty line has risen .

The official poverty line adjusted every year based on increases in the cost of living as measured by the CPI. However, given the widely accepted assessment that the CPI. However, given the widely accepted assessment that the CPI overstates living costs, it follows that over the years the poverty line has risen too little.

FILL IN THE BLANK The one-third fraction used in the original measure of the poverty line came from surveys conducted when households headed by single women with kids under 18 today.

The one-third fraction used in the original measure of the poverty line came from surveys conducted when households headed by single women with kids under 18 less common than today.

Define Poverty Rate:

The percentage of people in households whose incomes were under the poverty line.

FILL IN THE BLANK The percentage of people in households whose income are below the poverty line is called the poverty .

The percentage of people in households whose income are below the poverty line is called the poverty rate.

FILL IN THE BLANK The post-1996 array of welfare programs appear to be impacting incomes and employment for the poor those in use before the reforms.

The post-1996 array of welfare programs appear to be impacting incomes and employment for the poor much more positively than those in use before the reforms.

FILL IN THE BLANK The poverty rate among females in the United States is the rate for males.

The poverty rate among females in the United States is higher than the rate for males.

FILL IN THE BLANK The poverty rate for minority racial/ethnic groups (i.e., Hispanics and African Americans, separately or in combination) in America is the rate experienced by whites.

The poverty rate for minority racial/ethnic groups (i.e., Hispanics and African Americans, separately or in combination) in America is more than double the rate experienced by whites.

FILL IN THE BLANK The racial/ethic group in America that has the most people living in poverty is .

The racial/ethic group in America that has the most people living in poverty is White, Non-Hispanic.

FILL IN THE BLANK The racial/ethnic group in America that suffers the highest poverty rate is .

The racial/ethnic group in America that suffers the highest poverty rate is Black, Non-Hispanic.

Define Wealth Inequality:

The unequal distribution of accumulated assets, minus liabilities.

FILL IN THE BLANK There is some reason to believe that the method used to determine the poverty line (3X the cost of a minimally sufficient diet) produces a too low value because it excludes costs.

There is some reason to believe that the method used to determine the poverty line (3X the cost of a minimally sufficient diet) produces a too low value because it excludes day-care costs.

PICK & CHOOSE Of the three goals a successful social safety net should have, which one was implicitly ignored in the years prior to the 1996 reforms? (A?) Have incentives for people to want to leave it. (B?) Be generous enough to give recipients a socially acceptable living standard. (C?) Not be so expensive as to weaken support from taxpayers.

(A!) Have incentives for people to want to leave it.

PICK & CHOOSE Which statements accurately characterize the 1996 reforms to the social safety net? (Select all that apply.) (A?) Outright cash benefits were deemphasized. (B?) Time limits on benefits were instituted. (C?) Work requirements were established for some programs. (D?) Rules governing the awarding of disability income payments were toughened. (E?) Welfare caseloads exploded, signifying the abandonment of the goal of maintaining taxpayer support.

(A!) Outright cash benefits were deemphasized. (B!) Time limits on benefits were instituted. (C!) Work requirements were established for some programs. (D!) Rules governing the awarding of disability income payments were toughened.

PICK & CHOOSE Which of the following are considered to be the goals/requirements of a social safety net? (Select all that apply.) (A?) Enable government to control the lives of those unwilling or unable to make wise choices. (B?) Not be so expensive as to weaken support from taxpayers. (C?) Be generous enough to give recipients a socially acceptable living standard. (D?) Have incentives for people to want to leave it.

(B!) Not be so expensive as to weaken support from taxpayers. (C!) Be generous enough to give recipients a socially acceptable living standard. (D!) Have incentives for people to want to leave it.

PICK & CHOOSE Using a poverty line of $12,500, under the current system of calculating the poverty rate, which of the following people is not considered in poverty and probably ought to be? (A?) A rural family whose sole income is from a minimum wage ($10,300) position. (B?) A rural family whose combined income is $15,000. (C?) A New York City family whose combined income is $13,000. (D?) A retired couple whose multimillion-dollar estate yields them no income.

(C!) A New York City family whose combined income is $13,000.

PICK & CHOOSE Which programs for the poor are of the "cash" variety? (Select all that apply). (A?) Section 8. (B?) Head Start. (C?) SSI (Supplemental Security Income) (D?) TANF (Temporary Assistance for Needy Families). (E?) SNAP (Supplemental Nutrition Assistance Program). (F?) EITC (Earned Income Tax Credit).

(C!) SSI (Supplemental Security Income). (D!) TANF (Temporary Assistance for Needy Families). (F!) EITC (Earned Income Tax Credit).

Define Gini Coefficient & it's formula:

-A statistical measure of distribution used to gauge economic inequality, measuring income distribution or, less commonly, wealth distribution among a population. -The Gini coefficient is equal to the area below the line of perfect equality (0.5 by definition) minus the area below the Lorenz curve, divided by the area below the line of perfect equality. In other words, it is double the area between the Lorenz curve and the line of perfect equality.

What are the 3 Main Factors of Production?

-Land. -Labour. Capital.

What are the two main sources of Economics Growth?

1.) Increase in the availability of resources. 2.) Increase in the ability of resources.

Define Poverty:

A state or condition in which a person or community lacks the financial resources and essentials for a minimum standard of living. Poverty means that the income level from employment is so low that basic human needs can't be met.

Define Mixed Economy:

A system with Free Markets (Capitalism) but also some Centrally-Planned (Command) Economies present. -Example: Almost all countries, including the US, have Mixed Economies (Capitalism & Command).

FILL IN THE BLANK According to the analysis of economist Timothy Smeeding, European anti-poverty programs those implemented by the United States.

According to the analysis of economist Timothy Smeeding, European anti-poverty programs far more aggressive than those implemented by the United States.

Define Wealth:

Accumulated assets, minus accumulated costs.

Define In-Kind Subsidies:

Anti-poverty programs that provide goods and services to the poor in forms other than cash.

FILL IN THE BLANK Give the day-care costs many poor families incur, it's likely that a more appropriate multiplier of the minimally sufficient diet (and hence the poverty line) is

Give the day-care costs many poor families incur, it's likely that a more appropriate multiplier of the minimally sufficient diet (and hence the poverty line) is greater than three.

FILL IN THE BLANK If we were to use an absolute definition of poverty (e.g., some subsistence level just above starvation), then probably we could say that in America today, there are people.

If we were to use an absolute definition of poverty (e.g., some subsistence level just above starvation), then probably we could say that in America today, there are no people.

PICK & CHOOSE Poverty is a concept in that a person with that income in the United States may be considered in Poverty, while a person with that same income in Somalia may be in the upper quarter of income earners. (A?) Relative. (B?) Absolute. (C?) Irrelevant. (D?) Fictitious.

Poverty is a Relative concept in that a person with that income in the United States may be considered in Poverty, while a person with that same income in Somalia may be in the upper quarter of income earners.

FILL IN THE BLANK Since President Johnson launched the "war on poverty" in the mid-1960s, the U.S. poverty rate has .

Since President Johnson launched the "war on poverty" in the mid-1960s, the U.S. poverty rate has stayed in the same 11 to 15 percent range.

FILL IN THE BLANK Suppose a country has 10 million households living with incomes, on average, $3,000 below the poverty line. In this case, the poverty gap is .

Suppose a country has 10 million households living with incomes, on average, $3,000 below the poverty line. In this case, the poverty gap is $30 billion.

Define Poverty Line:

That level of income sufficient to provide a family with a minimally adequate standard of living.

Define the Lorenz Curve:

The Lorenz curve is a graphical representation of income inequality or wealth inequality developed by American economist Max Lorenz in 1905. The graph plots percentiles of the population on the horizontal axis according to income or wealth.

Define Poverty Gap:

The amount of money that would have to be transferred to households below the poverty line to get them out of poverty.

FILL IN THE BLANK The amount of money that would have to be transferred to households below the poverty line to bring them out of poverty is called the .

The amount of money that would have to be transferred to households below the poverty line to bring them out of poverty is called the poverty gap.

FILL IN THE BLANK The evidence is that welfare reform in 1996 resulted in welfare rolls. (A?) A substantial increase in. (B?) A slight increase in. (C?) A substantial decrease in. (D?) No impact on.

The evidence is that welfare reform in 1996 resulted in a substantial decrease in welfare rolls.

Define Income Inequality:

The extent to which income is distributed in an uneven manner.

FILL IN THE BLANK The first poverty line was computed by multiplying the cost of a minimally sufficient by . (insert a number).

The first poverty line was computed by multiplying the cost of a minimally sufficient by 3.

FILL IN THE BLANK Through the many programs it operates government clearly prefers programs that .

Through the many programs it operates government clearly prefers programs that give it control over the recipients' behavior.

What are the 2 Relative Costs for Cash & In-Kind Programs along with their total cost?

Total Costs of the Programs is $789 Billion: -Cash programs $148 Billion. -In-Kind Programs $641 Billion.

With Quintiles, how do you calculate a graph for the cumulative distribution of earnings?

We cumulate the percentage of earnings across the quintiles by adding the percentage of each quintile to the total as we move from the lowest quintile to the next.

FILL IN THE BLANK With respect to age, the poverty rate is highest among those .

With respect to age, the poverty rate is highest among those under 18.