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Exam 20: Income Inequality and Poverty

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Question 71

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In 2011 the top 20% of income earners accounted for over 80% of all income received by United States' families.

A) True
B) False

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Question 72

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The poverty line is an absolute standard and is based on the cost of providing an adequate diet.

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B) False

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Question 73

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An example of a transitory change in income is the

Figure 20-3 ​ ​ -Refer to Figure 20-3. In 2017, the percent of children under age 18 in poverty is

Approximately what fraction of total income in the US economy comes from labor earnings?

Table 20-7 Distribution of Income in Imagination $\begin{array} { | l | l | l | } \hline \text { Number of Families } & \text { Income Range } & \text { Average Income } \\\hline 23,500 & \text { less than } \$ 18,000 & \$ 15,890 \\\hline 42,410 & \text { between } \$ 18,000 \text { and } \$ 36,000 & \$ 27,450 \\\hline 57,330 & \text { between } \$ 36,000 \text { and } \$ 54,000 & \$ 46,220 \\\hline 63,490 & \text { between } \$ 54,000 \text { and } \$ 72,000 & \$ 65,000 \\\hline 24,770 & \text { between } \$ 72,000 \text { and } \$ 90,000 & \$ 80,790 \\\hline 23,500 & \text { more than } \$ 90,000 & \$ 118,750 \\\hline\end{array}$ -Refer to Table 20-7. The Human Development Report computes a measure of inequality by dividing the income of the richest 10% of the population by the income of the poorest 10%. If the value for this measure of inequality in the US is 15.9 and the value for India is 8.6, how does Imagination compare to these two nations?

Figure 20-1 ​ ​ -Refer to Figure 20-1. The absolute number of people in poverty

In 2017, the top 5 percent of U.S. families earn approximately how much income per year?

If a father earns 20% above his generation's average income, his son will most likely earn what percent above his generation's average income? What does this statistic indicate?

A follower of liberalism would not support a redistribution of income but rather would focus on equalizing opportunities.

Critics of raising the minimum wage argue that

If the government decided that each family needs a minimum income of $25,000 and promised to make up the difference between whatever a family earned and $25,000, which of the following is correct?

In the US, is it more likely that someone will become a millionaire by making money on his/her own or by inheriting a fortune?

The table below reflects the levels of total utility received from income for each of four members of a society. $\begin{array} { l l l l l } \text { Income } & \text { Peter } & \text { Paul } & \text { Mary } & \text { Jane } \\\hline \$ 1 & 15 & 32 & 20 & 16 \\\$ 2 & 29 & 61 & 38 & 30 \\\$ 3 & 42 & 87 &54& 42 \\\$ 4 & 54 & 110 & 54 & 52 \\\$ 5 & 65 & 130 & 68 & 60 \\\$ 7 & 75 & 147 & 80 & 66 \\\$ 8 & 84 & 161 & 90 & 70 \\\$ 2 & 92 & 172 & 98 & 72\end{array}$ a.Assume that the society has the following income distribution: Peter $3 Paul $7 Mary $5 Jane $3 Is it possible for the government to increase total aggregate utility by redistributing income among members of society? Explain your answer. b.Assume that the government has $19 to allocate among the four members of society.(Assume that no one has any income to start with.) If the government is interested in distributing income in a way that maximizes aggregate total utility, how should it distribute the $19 of income? c.Does the table above describe a situation characterized by diminishing marginal utility? Explain your answer.

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. Which group would be most in favor of the switch from the current progressive tax policy to the new policy?

Which of the three political philosophies discussed in the textbook, if any, view the total income of society as a shared resource that a social planner can freely redistribute to achieve some social goal?

Most economists believe that a family bases its spending decisions on its transitory income.

One existing government program that works much like a negative income tax is the Earned Income Tax Credit.

Utilitarians believe that the proper goal of the government is to maximize the sum of the utilities of everyone in society.

Since 1970, has the distribution of income in the US become more equal, less equal, or remained unchanged?