chap 13
There are eight households in a rural community. Four of the households earn $30,000 each per year, and the other four households earn $40,000 each per year. The median household income is _____, and the mean household income is _____.
$35,000; $35,000
According to diminishing marginal utility, which of the following people would gain the lowest marginal benefit from an extra $100 of income?
Ariana, an actress with an annual household income of $1,500,000.
Which is NOT an antipoverty program?
Social Security
In the United States, since World War II, the distribution of income has:
changed first toward greater equality and then, after the 1970s, toward greater inequality.
In the sleepy community of Wisteria Lane, there are six households, each of which earns $40,000 per year. Suppose that a new resident, with an income of $4 million per year, builds an ostentatious mansion in the community. After the new resident moves in, the median household income has _____, and the mean household income has _____.
not changed; increased
Economists believe that average lifetime income is a better predictor of a person's current living standard than current income because:
people can save and borrow to average out consumption over their lifetimes.
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%
Junko is a single mother who earns $17,000 per year. She receives $3,000 per year in in-kind transfers and a $1,000 earned income tax credit. If her earned income rises to $22,000, she will lose the tax credit and $500 of her in-kind transfer benefits. What is Junko's effective marginal tax?
30.0%
Which factor(s) is/are associated with poverty? I. a lack of adequate employment II. a lack of education III. a lack of proficiency in English
I, II, and III
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.
Which of the following tax systems is progressive? Corinne pays a 10% tax on the first $10,000 she earns plus _____ tax on any additional income.
a 25%
Juan is 80 years old. Over Juan's adult lifetime, he accumulated savings for several decades and is using that savings to cover his expenses in retirement. Early in life when his income was low, he borrowed funds several times to cover his expenses, paying back the loans over the next few years. Juan's consumption pattern over his lifetime was influenced heavily by his:
permanent income
The minimum annual income, of which a family that earns a lower amount is considered in poverty, is the:
poverty line.
If a government program is not means-tested, it:
provides benefits for everyone, regardless of their incomes.
Which is NOT a rationale for the creation of the social safety net?
providing universal health care
All of these are rationales for the creation of the social safety net EXCEPT:
providing universal health care.
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
Olya and her husband share an apartment. He feels prosperous because they have enough income to cover food, shelter, and other basic needs without going into debt. She feels poor because she has less than her sister's family and the families of some of her friends. Olya is defining poverty in _____ terms, while her husband is defining poverty in _____ terms.
relative; absolute
Of the programs offered by the federal government, the largest _____ program in the United States is _____.
social insurance; Social Security
The _____ is the collection of government programs designed to alleviate economic hardship.
social safety net
The mean household income is:
the average income across all households
The poverty line is defined as:
the minimum annual income that is considered adequate to purchase the necessities of life.
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?
33.0%
Meredith is a single mother who earns $20,000 per year. She receives $3,600 per year in in-kind transfers and a $600 earned income tax credit. If her earned income rises to $25,000, she will lose the tax credit and $1,900 of her in-kind transfer benefits. What is Meredith's effective marginal tax?
50.0%
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.
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.
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.
How has the U.S. poverty rate varied over the past 40 years?
The rate has been relatively stable.
Many government programs associated with the welfare state are believed to cause deadweight loss, since they:
affect incentives to work and to save
Some safety net programs provide specific goods rather than income or tax breaks. This type of program benefit is known as:
an in-kind transfer
Food stamps (now called the Supplemental Nutrition Assistance Program) is an example of:
an in-kind transfer.
Compared with many other developed nations, the United States has:
an unusually high poverty rate/.
The official poverty line depends on _____ and is adjusted every year to reflect changes in the cost of living.
the size and composition of a family
All of these are leading causes of poverty in the United States EXCEPT:
the social safety net.
The poverty line in the United States is based on an estimate of:
three times the value of low-cost food for the household.
Social insurance programs do NOT:
use a means test to qualify people for benefits
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 (b/c the majority of middle is high)
Which of the following statements describes a means-tested government program?
Holly is eligible for benefits only if her household income is below $10,00 per year.
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 is an example of an in-kind transfer?
Martin receives housing from the government due to his low income.
_____ programs are designed to provide benefits to people whose incomes fall below some minimum level.
Means-tested
Which of the following statements summarizes the equity-efficiency tradeoff in relation to income redistribution programs?
More equal incomes may come at the cost of lower average incomes.
The overall well-being score for Yulhee (income $25,000) is 4.6, and the well-being score for Pancho (income $120,000) is 8.2. Across the two of them, total well-being is 12.8. The change in well-being for a $5,000 change in income for Yulhee is .4 and for Pancho is .2. What net change in total well-being will occur if $5,000 of Pancho's income is taken as tax and transferred to Yulhee through an income transfer?
Total well-being will rise to 13.0 for a net gain of .2. (.4 - 0.2 = net gain of .2)
The well-being score for Mario (income $20,000) is 5.6, and the well-being score for Lance (income $150,000) is 9.2. Across the two of them, total well-being is 14.8. The change in well-being for a $5,000 change in income for Mario is .4 and for Lance is .1. What net change in total well-being will occur if $5,000 of Lance's income is taken as tax and transferred to Mario through an income transfer?
Total well-being will rise to 15.1 for a net gain of .3
Which tax is regressive? Arturo pays an 8% tax on the first $9,000 he earns plus _____ tax on any additional income.
a 5% (b/c tax gets smaller, i.e. regressive)
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
What relationship exists between income and well-being in the well-being curve found in the figure? (in the figure, on left side bar is "average responses from servers asking where you stand between the best possible life for you (which is 10/10) and the worst (0/10))
a positive relationship with decreasing marginal gains in well-being as income rises.
For the United States, the most recent data indicate a Gini coefficient of 0.41, suggesting that:
compared with most European countries, the United States has high levels of income inequality.
In the United States, income inequality fell:
during the 1930s and 1940s
The views of fairness discussed in the chapter do NOT include:
equal innate abilities (does include equality of opportunities, fair processes, and equality of outcomes)
The distribution of income by quintiles at one moment overstates the true inequality of income because:
families near the bottom of the distribution in any given year may be having an unusually bad year, while those at the top may be having an unusually good one.
Medicaid is funded by:
federal and state governments
Of the programs offered by the government, which U.S. redistribution program offers a means-tested, in-kind transfer?
food stamps
If the median household income in 2018 was $63,179:
half of the households in the United States earned less than $63,179, and half earned more than $63,179.
The costs of the redistribution of income include each of the following EXCEPT:
higher prices for goods and services.
There are eight households in a rural community. Four of the households earn $30,000 each per year, and the other four households earn $40,000 each per year. Suppose that a new resident, with an income of $2 million per year, builds a mansion in the community. After the new resident moves in, the median household income has _____, and the mean household income has _____.
not inc inc
The poverty rate is the:
percent of people whose family income is below the poverty line.
Which is a U.S. government health insurance program designed for people aged 65 years and above?
Medicare
In the United States, most social insurance programs are funded by taxes that are:
NOT progressive (not progressive is the answer)
Which of the following is NOT a social insurance program in the United States?
NOT social security
Which of the following statements is NOT correct regarding the incidence of poverty in the United States?
Over half of all spells of poverty last no more than three months.
Which of the following statements is NOT correct for the United States?
People of color are less likely than others to experience poverty. (so, correct for the us is Most people will spend some time in poverty in their lifetime. Children and single moms are the most likely to be in poverty. Most people who are in poverty will spend much of their lives in poverty.)
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
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 across households.
consumption
The Lopez family is a high-income household that pays a high tax rate. The Campbell family is a low-income household that receives financial assistance from the government in the same amount as the tax paid by the Lopez family. The value of the marginal dollar of the financial assistance to the Campbell family and of the taxes paid by the Lopez family is:
different, since the marginal dollar is worth more to the low-income family.
Recent data from the World Bank for the distribution of income and average income in Sri Lanka and Mongolia are presented in Table: Distribution of Income and Average Income for Sri Lanka and Mongolia. Based on the data in the table, which of the following statements is correct?
Average income in the bottom quintile is lower in Sri Lanka than in Mongolia.
_____ program benefits are available only to those whose incomes meet a poverty standard, and _____ program benefits are available to anyone who experiences specified negative outcomes.
Means-tested social safety net; social insurance
In which of the following situations would 100 people in poverty in a country be LEAST worrisome to policy makers?
Most of the poor have incomes just barely below the poverty line.
A government program provides needed medical care to households whose income falls below the poverty line. The program is funded through the general tax revenues in the country. This program would be classified as:
an income redistribution program in the social safety net.
(Figure: Major U.S. Redistribution Programs) Use Figure: Major Redistribution State Programs. The figure lists welfare programs available to individuals. The first column includes the Earned Income Tax credit and Unemployment Insurance and thus specifies programs _____.
whose benefits take the form of monetary transfers.
Barbara works at her local Costco, which provides a health insurance program for all its workers. This is an example of:
employment-based health insurance.