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Exam 20: Income Inequality and Poverty

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Question 21

True/False

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Many economists believe that a family bases its spending decisions on its permanent, or average, income rather than on transitory income.

A) True
B) False

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Question 22

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Scenario 20-3 Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability: Taxes owed = (1/4 of income) − $16,000 -Refer to Scenario 20-3. This negative income tax would guarantee what minimum level of income to every family?

A) $14,000
B) $18,000
C) $16,000
D) $11,000

E) None of the above
F) A) and B)

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Question 23

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Who said "The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of socialism is the equal sharing of miseries"?

In 2011, the top 20% of US families had more than times as much income as the bottom 20%.

Supporters of raising the minimum wage argue that minimum-wage laws are

The Callaway family owns a small bait and tackle shop in a resort town in Wisconsin. An economic recession reduces the number of tourists for one summer, which reduces the family's income for that year. For the Callaway family, their

Which of the following statements is correct?

Since 1970 the United States' income distribution has become more equal.

Temporary Assistance for Needy Families (TANF) and Supplemental Security Income (SSI) are examples of .

Outline the possible work disincentives created by anti-poverty programs. Is there a way to solve this problem without causing other forms of inefficiency to arise? Explain your answer.

If greater equality is the benefit of government intervention into the allocation of society's resources, what is the cost?

According to a study by Michael Cox and Richard Alm, consumption per person in the richest 20% of households was only 2.1 times consumption per person in the poorest 20% of households.

Economists Cox and Alm compared the gap between rich and poor and found that the richest 20% was about 15 times better off than the poorest 20% when they compared what data?

The Earned Income Tax Credit (EITC) is a tax provision that allows poor working families to receive income tax refunds greater than the taxes they paid during the year. Therefore, the EITC works much like a .

Explain what information is contained in the poverty rate statistic. Are there problems in using an absolute scale to measure poverty? If so, explain them.

Suppose the government used the following formula to compute a family's tax liability: Taxes owed = 28% of income - $8,000. How much would a family that earned $75,000 owe?

Scenario 20-5 Zooey is a single mother of two young children whose husband died in a tragic car accident. She earns $20,000 per year working as a cashier at a grocery store. The government uses a negative income tax system in which Taxes owed = (1/4 of income) - $15,000. -Refer to Scenario 20-5. Zooey's brother Zander owes $10,000 in taxes. How much does he earn?

Despite continued growth in average income since the early 1970s, the poverty rate has not declined below the level reached in 1973.

Scenario 20-4 Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability: Taxes owed = (1/4 of income) - $14,000 -Refer to Scenario 20-4. A family earning $56,000 before taxes will have $56,000 after tax.

Critics argue that a disadvantage of the Earned Income Tax Credit is that it does not effectively target the working poor because many recipients are the teenage children of middle-income families.