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Exam 20: Income Inequality and Poverty

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Question 61

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The poverty line is based on the percentage of people who cannot afford an adequate diet.

A) True
B) False

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Question 62

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Suppose that Family A borrows money when its car breaks down and saves money when the wife receives a holiday bonus from her employer. Suppose that Family B borrows money to buy elaborate birthday presents for the children and spends the husband's holiday bonus on a vacation to Washington. Which of the following is correct?

A) Both Family A's and Family B's spending habits suggest that they base their purchasing decisions on transitory income."
B) Family A's spending habits suggest that it bases its purchasing decisions on transitory income rather than permanent income.Family B's spending habits suggest that it bases its purchasing decisions on permanent income rather than transitory income.
C) Family A's spending habits suggest that it bases its purchasing decisions on permanent income rather than transitory income.Family B's spending habits suggest that it bases its purchasing decisions on transitory income rather than permanent income.
D) Both Family A's and Family B's spending habits suggest that they base their purchasing decisions on permanent income.

E) C) and D)
F) B) and C)

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Question 63

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Table 20-1 The following table shows the distribution of income in Choochooville. ​ ​ $\begin{array} { | c | c | } \hline \text { Group } & \text { Annual Family Income } \\\hline \text { Bottom Quartile } ( 25 \% ) & \$ 23,000 \text { and below } \\\hline \text { Third Quartile } & \$ 23,000 \text { to } \$ 52,999 \\\hline \text { Second Quartile } & \$ 53,000 \text { to } \$ 82,999 \\\hline \text { Top Quartile } & \$ 83,000 \text { and above } \\\hline\end{array}$ ​ -Refer to Table 20-1. Twenty-five percent of all families have incomes below what level?

John Rawls, who developed the way of thinking called liberalism, argued that government policies should be aimed at maximizing the sum of utility of everyone in society.

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. The government does not have to pay a subsidy to any family through this negative income tax if the family with the lowest income earns $50,000.

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. The government does not receive any tax revenue through this negative income tax if the family with the highest income earns $56,000.

A disadvantage of the Earned Income Tax Credit (EITC) program is that it does not help alleviate poverty due to unemployment, sickness, or other inability to work.

Which of the following will not occur when government policies are enacted to make the distribution of income more equitable?

Over the past 50 years, the U.S. poverty rate was at its lowest level in

The regular pattern of income variation over a person's life is called the .

Among all countries in the world, the United States has the most income inequality.

The poverty rate is the percentage of the population whose family income falls below an absolute level called the .

The top 5 percent of U.S. annual family income in 2011 was $205,200 or more.

The utilitarian justification for redistributing income is based on the assumption of diminishing marginal utility.

In a typical 10-year period, about one in four families falls below the poverty line in at least one year. What percentage of families are poor for eight or more years?

Suppose that Jamal is moving to a state where personal incomes are distributed randomly. If Jamal believes in liberalism, he would prefer

About four out of five millionaires in the United States earned their money rather than inherited it.

When designing public policies, which income group would philosopher John Rawls argue needs the most attention?

A disadvantage associated with in-kind transfers to reduce poverty is that they

Scenario 20-1 ​ The government is proposing switching from a progressive tax system in which families pay 15% of the first $50,000 earned, 25% of the next $50,000 earned, and 35% of any income over $100,000 to a tax system in which every family pays 20% of their income minus $20,000. -Refer to Scenario 20-1. What would libertarians think of the tax two policies?