ECON ch.21
Income of Island Inhabitants: Davenport($8,000) Reacher($44,000) Millhouse($19,000) Pike($51,000) Cole($32,000) Scudder($3,000) Flowers($26,000) The median income is $______ The mean income is $______
$26,000, $26,142
The United States is often referred to as a land of opportunity. Do mobility data back up that assertion? Answer true or false 1. Data indicate that over the last 40 years income mobility in the United States has remained constant. 2. Income mobility in the United States is higher than in many other developed countries. 3. Where you live in the United States is an important factor in determining income mobility. 4. Mobility data show that those who start at the bottom of the income ladder will remain at the bottom 5. Whether the US is a land of opportunity is a normative question
1. True 2. False 3. True 4. False 5. True
What impact does rent seeking have on income inequality? Is rent seeking a problem in the United States? Answer True or False 1. The ability to keep taxes relatively low for those in the top quintile is an example of rent seeking. 2. Rent seeking results in increased income inequality. 3. Inequality that results from rent-seeking behavior can increase the size of the economic pie 4. When people engage in rent seeking, they seek to increase their wealth at the expense of everyone else. 5. Rent seeking provides a way for those at the bottom of the income ladder to gain wealth
1. True 2. True 3. False 4. True 5. False
Changes in technology and globalization have hollowed out some traditionally middle-class jobs and jobs for low-skilled workers. The idea of an unconditional basic income (UBI) has been proposed by some economists and politicians. A basic income guarantees each individual some unconditional, regular sum of money sufficient for basic necessities. Answer true or false 1. A UBI would allow for the removal of costly government transfer programs, like TANF for needy families. 2. Poor people receiving a lump minus sum payment may make poor financial decisions comma creating a further liability. 3. A basic income could create greater equality by providing a minimum standard of living for everybody. 4. All else equal, a basic income would create an incentive to work hard and innovate. 5. If the tax necessary to fund the UBI is high enough, it may stifle innovation and job creation.
1. True 2. True 3. True 4. False 5. True
All of the following are ways in which advances in technology have contributed to income inequality except ___________. A. It decreases economic efficiency by creating a disincentive for skilled workers to invent, create, and work hard. B. It skews wealth toward a few people-those with special skills-and closes the doors for those without special skills. C. Technological advance leads to increased globalization, which creates greater competition among low-skilled workers. D. Technology favors more skilled workers, increasing demand for those skills while decreasing demand for lower-skilled workers.
A
Data indicate that over the last 40 years, income mobility in the United States has ____________. A. Remained constant B. Increased then decreased C. Decreased D. Increased
A
In the United States, the top fifth of all earners take home about ________ of all income. A. 1/2 B. 3/4 C. 9/10 D. 1/5
A
In 2012, the real GDP estimate for Tuvalu, a Polynesian island, was $37 million and the population estimate was approximately 10,800. What was the approximate real GDP per capita in 2012? A. $3,426 B. $343 C. $2,919 D. $3,700
A
Is income inequality necessarily a negative for society? A. No, it can create the incentives necessary to work hard, invest, and create, which makes society richer. B. Yes, even when inequality in a society is low, it reduces the incentives to work hard, which slows economic growth. C. No, it gives the richest members of society the financial resources they need to stay at the top of the income ladder. D. Probably not, since we can always raise the minimum wage or increase taxes on the wealthy to offset the inequality.
A
Is real GDP per capita an ideal measure of how well off the individuals in a country are? A. No, real GDP per capita is an average that can be skewed upward by a small number of extraordinarily high earners. B. Yes, by providing an average, it gives us the best indicator of the material standard of living of the typical person. C. No, real GDP per capita fails to measure how a nation's standard of living has changed over time. D. Probably not, since real GDP per capita simply measures the income of the middle person in an income distribution.
A
"Higher taxes on the rich are justified because the rich have received disproportionately greater benefits from services, infrastructure, and protections that the government provides." This reflects _____________. A. The benefits received principle B. Utilitarianism C. The Rawlsian social contract D. None of the above
A
[Related to Application 21.1] From an economic perspective, should you be more dissatisfied with your own income if you find out that your co-worker is making more than you? A. No, your happiness at work should depend only on whether the benefits of the job outweigh the costs for you. B. Yes, if it lowers your job satisfaction, then it is "bad" inequality, which causes the economic pie to shrink. C. No, this means your employer is extracting the greatest value from its resources, which increases the economic pie. D. Yes, you should always compare your wage relative to other workers and adjust your effort accordingly.
A
[Related to Application 21.2] Application 21.2 suggests that Americans would prefer a much more equitable wealth distribution than what actually exists. Why do you suppose lawmakers have not enacted policies to give Americans what they prefer? A. Those at the top of the income distribution may be engaging in rent seeking to prevent a fairer income distribution. B. There are currently no programs that the government could use to provide a fair and equitable distribution of income. C. Americans' preference for a more equal distribution has caused them to overestimate the current level of inequality. D. Lawmakers know that a high level of inequality will motivate people to be more productive and increase efficiency.
A
Generally speaking, Gini coefficients indicate that the income distribution in developed countries is ____________ the income distribution in developing countries. A. About as equal as B. More equal than C. Less equal than D. There is no general pattern of inequality in developed and developing countries
B
The Gini coefficient in the United States has been ____________ over the past 50 years. A. Roughly Constant B. Increasing C. Alternatively increasing and decreasing D. Decreasing
B
The first Krispy Kreme donut you ate was amazing, the second was good, and the third was only okay. This is an illustration of _________. A. Median income B. Diminishing marginal utility C. Income distribution D. The Gini coefficient
B
[Related to Application 21.2] Research by Ariely and Norton indicates that Americans have a preference for much greater equality than currently exists. Based on Ariely and Norton's research, why do you think Americans don't advocate more strongly for greater equality? A. They understand that high levels of inequality must exist in order to maintain an innovative and competitive society. B. Americans may not fully understand how far the current distribution is from the ideal income distribution. C. Transactions costs would be too high for Americans to lobby against those who engage in rent-seeking behavior. D. Advocating for greater equality would lead to a less progressive tax code for high-income earners.
B
A large and increasing portion of government spending goes to transfer programs (such as Social Security, Medicare, and Medicaid), none of which directly helps the rich get richer. Given those facts, is the benefits received principle a reasonable justification for progressive taxation? A. Yes, it doesn't matter who benefits more from the transfer payments as long as it increases society's overall utility. B. Yes, people who are very rich should be required to give some of their money to people who are very poor. C. No, since the poor receive more benefit from transfers than the rich, it weakens the case for progressive taxation. D. Maybe, but it can only be justified if the poor receive more utility from receiving the transfers than the rich do.
C
As indicated by Gini coefficients, the U.S. income distribution is ____________ the income distribution in other developed countries. A. More equal than B. About the same as C. Less equal than
C
Over the past 40 years, income inequality in the United States has become ____________. A. Less unequal, as government transfer payments have helped bottom earners capture a greater share of total income. B. More equal, although income for the bottom quintiles has increased more slowly than income for the upper quintiles. C. More unequal, with high-income earners capturing an increasing share of total income. D. The degree of income inequality is a normative question and cannot be measured by economic data. Compared to most other developed countries, the United States has _____ income inequality.
C
The United States and Sweden have similar average incomes, but the United States has a wider income distribution, with more people who are very poor and more who are very rich. Is income mobility likely to be lower in the United States than in Sweden? A. No, countries like Sweden who place higher taxes on the rich and spend more on the poor tend to have less mobility. B. No, if both countries have similar average incomes, then they will both experience similar levels of income mobility. C. Yes, as the gap in the income distribution widens, it may be more difficult to move to a higher income quintile. D. Maybe, but as the gap in the income distribution widens, there is generally more room to climb up the income ladder.
C
The __________ is the share of income received by different groups. A. Mean income B. Median income C. Income distribution D. Gini coefficient
C
What the ideal income distribution looks like is a(n) ____________ question. A. Positive B. Objective C. Normative D. Value-free
C
If 90% of the income is earned by the top 1%, the resulting Gini coefficient will be ________. A. Near 100% B. Exactly 0.9 C. Near 0 D. Near 1
D
In 2014, economist Thomas Piketty of the Paris School of Economics released a book titled Capital in the Twenty-First Century, which focuses on wealth and income inequality. Piketty suggests that in capitalism, those who start out with money have an easier time making more money, and when this system is left unchecked, the top percentage of income holders eventually capture enough wealth that those who are not in the top percentage could never hope to catch up. What options, if any, are available to the government to help reduce the income inequality that Piketty describes? A. Increase transfer payments to the poor. B. Clamp down on rent-seeking behavior. C. Provide cost-effective education to help close the skills gap among workers. D. All of the above can reduce income inequality. E. None of the above: Government cannot affect the level of income inequality.
D
_____________ is the belief that the ethically proper thing to do in any situation is the thing that maximizes society's overall utility or minimizes society's overall suffering. A. The Rawlsian social contract B. Redistribution C. Benefits received principle D. Utilitarianism
D
How does increasing globalization affect the incomes of the poor in the United States? The rich? It __________ real wage growth for unskilled labor and __________ real wage growth for those with special skills. A. does not affect; increases. B. increases; decreases. C. increases; increases. D. decreases; increases. What is the overall effect of globalization on the income distribution? In the United States, globalization has likely _______ the gap between the rich and the poor.
D, increased
_____ is a measure of the overall output of an economy and the overall income received by that economy's people.
GDP
_______ is the increasing integration of the world's economies.
Globalization
The _________ plots, for any given percentage of the population, the proportion of the income earned by that particular group of people.
Lorenz curve
________ is a philosophy that says the ethically proper thing to do in any situation is the thing that maximizes overall societal happiness.
Utiliarianism
The more unequal the income distribution, the _______ the Gini coefficient.
greater
__________ describes how a nation's income is divided among its people.
income distribution
The _________ measures the income of the person in the middle of the income distribution.
median income
A system that assesses proportionally higher taxes on the rich than it does on the poor is called a _______ .
progressive tax system
A _______ is a group containing exactly one-fifth of the population.
quintile
Someone who seeks to use the power of government to his own private advantage at the expense of everyone else is engaging in ________ .
rent seeking
A labor market where one person rises to superstardom and riches while the others walk away empty-handed is called a ______ market.
tournament