Economic Chapter 20

Chapter 20 Income Inequality, Poverty, and Discrimination

Chapter 20 - Income Inequality, Poverty, and Discrimination

20-1

Chapter 20

Income Inequality, Poverty, and Discrimination

Multiple Choice Questions

1.In 2006, the average income for households in the United States was about:A.$66,570.B.$22,820.C.$9,610.D.$82,700.

AACSB: Reflective Thinking SkillsBloom's: KnowledgeLearning Objective: 20-2Topic: Income inequality; Lorenz Curve

2.In the quintile distribution of income, the term "quintile" represents:A.5 percent of the income receivers.B.10 percent of the income receivers.C.20 percent of the income receivers.D.25 percent of the income receivers.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 20-1Topic: Income inequality; Lorenz Curve

3.In 2006, a household with an annual income of $100,000 would find itself in the:A.second lowest quintile of the household income distribution.B.third quintile of the household income distribution.C.fourth quintile of the household income distribution.D.fifth (highest) quintile of the household income distribution.


4.In 2006, a household with an annual income of $20,000 would find itself in the:A.highest quintile of the household income distribution.B.lowest quintile of the household income distribution.C.second lowest quintile of the household income distribution.D.second highest quintile of the household income distribution.


5.The lowest quintile of households in the income distribution receives about:A.2.2 percent of the total income.B.3.4 percent of the total income.C.8.5 percent of the total income.D.10 percent of the total income.


6.If the top quintile (fifth) of all households receives 48 percent of total income and the lowest quintile receives 4 percent of total income, we can conclude that:A.the resulting Lorenz curve will be a 45-degree straight line.B.the top quintile receives twelve times as much income as the lowest quintile.C.the middle quintile must receive 60 percent of all income.D.government must be subsidizing the top quintile.

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 20-1Topic: Income inequality; Lorenz Curve

7.The highest quintile of households in the income distribution:A.receives about 58 percent of the total income.B.is comprised of 20 percent of all households.C.is comprised of 5 percent of all households.D.receives about 35 percent of the total income.


Answer the next Question(s) on the basis of the following Census data.

8.Which of the above distributions is closest to describing the United States?A.AB.BC.CD.D


9.In 2006, the highest quintile of households in the U.S. income distribution received about:A.35 percent of the income.B.54 percent of the income.C.60 percent of the income.D.50 percent of the income.


10.Census data indicate that currently the top fifth of all households receive about ________ times as much income as the bottom fifth.A.fifteenB.twelveC.eightD.three


11.The share of income going to the highest 10 percent of income receivers is:A.nearly 75 percent in the United States.B.lower in the United States than in some South American countries such as Mexico, Guatemala, and Brazil.C.lower today in the United States than in 1969.D.remarkably similar over a wide range of nations, including those which are rich and those which are poor.


12.The Lorenz curve:A.plots graphically the poverty rate over time.B.is located closer to the diagonal today than it was in 1970.C.plots graphically the distribution of income.D.is located farther from the diagonal when income is defined to include the value of noncash transfers.


13.The Lorenz curve shows the:A.progressiveness of the Federal tax system.B.degree of inequality in the distribution of income.C.degree of discrimination against African-Americans and other minorities.D.percentage of the population that is below the poverty line.


14.The Lorenz curve portrays:A.the functional distribution of income.B.the ratio of labor to capitalist income.C.the personal distribution of income.D.income equality.


15.The Gini ratio:A.measures the relative extent of poverty in a nation.B.compares the income of persons, households, or households at the 90th percentile of the income distribution to the income at the 10th percentile.C.is a numerical measure of the overall dispersion of income in a nation.D.is found by dividing the entire area below and to the right of the diagonal in the Lorenz diagram by the area between the diagonal and Lorenz curve.


16.The Gini ratio of income inequality ranges between:A.0 and 10,000.B.1 and 10.C.-1 and +1.D.0 and 1.


17.Refer to the above diagram where curves (a) through (d) are for five different countries. Income is equally distributed in:A.none of the countries shown.B.country b.C.countries a and e.D.country a.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 20-1Topic: Income inequality; Lorenz Curve

18.Refer to the above diagram where curves (a) through (e) are for five different countries. The Gini ratio is lowest in country:A.a.B.b.C.c.D.e.


19.Refer to the above diagram where curves (a) through (e) are for five different countries. Of the countries listed below, income is most unequally distributed in country:A.a.B.b.C.c.D.d.


20.Refer to the above diagram where curves (a) through (e) are for five different countries. The Gini ratio is:A.zero in country (e) and 1 in country (a).B.greater in country (b) than in country (c).C.zero in country (a) and 1 in country (e).D.less than 0.5 in country (d).

AACSB: Analytical SkillsBloom's: ApplicationLearning Objective: 20-1Topic: Income inequality; Lorenz Curve

Answer the next Question(s) on the basis of the following information. Suppose population A, consisting of Al, Bob, Curt, Doris, and Ellie, receive annual incomes of $5,000, $2,500, $1,250, $750, and $500, respectively.

21.Refer to the above information. What percentage of total income is received by the richest quintile?A.50B.5C.25D.20


22.Refer to the above information. What percentage of total income is received by the lowest 60 percent of the income receivers in population A?A.60B.50C.25D.18


23.Refer to the above information. Population B, consisting of Fred, George, Holly, Irma, and Joan, receive incomes of $4,000, $3,000, $1,250, $950, and $800, respectively. We:A.can say that the income of population B is less equally distributed than that of population A.B.can say that the income of population B is more equally distributed than that of population A.C.cannot make a meaningful comparison of the income distributions of populations A and B.D.can say that the poorest quintile of population B receives 12 percent of total income.


24.The greater the area between the Lorenz curve and the diagonal in the Lorenz Curve diagram, the:A.smaller is the Gini ratio and the greater is the degree of income inequality.B.larger is the Gini ratio and the greater is the degree of income inequality.C.smaller is the Gini ratio and the greater is the percentage of the population in poverty.D.larger is the Gini ratio and the greater is the percentage of the population in poverty.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-1Topic: Income inequality; Lorenz Curve

25.Which of the following Gini ratios indicates the highest degree of income inequality?A.0.78B.0.65C.0.29D.0.42


26.Which of the following Gini ratios indicates the lowest degree of income inequality?A.0.71B.0.55C.0.31D.0.45


27.Which of the following countries has the highest Gini ratio?A.ItalyB.United StatesC.JapanD.Mexico


28.The movement of individuals and households from one income quintile to another over time is called:A.income averaging.B.wealth turnover.C.income mobility.D.the ratchet effect.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 20-2Topic: Income mobility; government redistribution

29.Income mobility:A.contributes to greater wealth inequality in the United States.B.is less in the United States than in most developing nations.C.is the movement of individuals and households from one income quintile to another over time.D.makes lifetime income inequality among income receivers in the United States greater than income inequality in any single year.


30.Income mobility:A.makes lifetime income inequality among income receivers in the United States less than income inequality in any single year.B.is less in the United States than in most developing nations.C.is the movement of wage earners from one job to another.D.reduces the total percentage of households in the lowest quintile of the income distribution over time.

AACSB: Reflective Thinking SkillsBloom's: KnowledgeLearning Objective: 20-2Topic: Income mobility; government redistribution

31.The lifetime distribution of income is more equal than the annual distribution. This statement is:A.true, because the rich have gotten richer and the poor have gotten poorer.B.true, because there is considerable income mobility over time.C.false, because people tend to stay in the same income quintile over extended periods of time.D.false, because the rich have gotten richer and the poor have gotten poorer.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-2Topic: Income mobility; government redistribution

32.People's incomes are relatively low when they are young, reach a peak in middle age, and then decline. This fact helps explain:A.the wide variations of Gini ratios among nations.B.the equality-efficiency tradeoff.C.why the lifetime distribution of income is more equal than the distribution in any given year.D.why the lifetime distribution of income is less equal than the distribution in any given year.


33.Some economists have criticized standard government figures on income inequality, arguing that these data:A.exclude households whose earnings arise in the public sector.B.conceal the strong trend toward greater equality in household sizes.C.conceal the growth of poverty due to a growing number of discouraged workers.D.overstate the degree of income inequality by failing to include noncash transfers as income.


34.In the United States:A.taxes decrease, but transfers increase, income inequality.B.taxes increase, but transfers reduce, income inequality.C.both taxes and transfers decrease income inequality.D.both taxes and transfers increase income inequality.


35.Which of the following statements concerning the relative distribution of income is correct?A.The relative distribution of before-tax incomes has become decidedly more equal since 1970.B.Taxes increase, but transfer payments decrease, the degree of income inequality.C.Taxes and transfer payments both decrease the degree of income inequality.D.Taxes and transfer payments both increase the degree of income inequality.


36.Housing subsidies for low-income households:A.represent a cash transfer.B.are a part of the U.S. social insurance programs.C.represent a noncash transfer.D.conflict with the leaky-bucket analogy.


37.Standard Census data on the distribution of income:A.take all taxes and transfer payments into account.B.are before taxes in that they do not account for personal income and payroll taxes.C.include noncash transfers.D.exclude cash transfers.


38.A person arguing that income inequality is actually less than that described by the standard Census data might say that the:A.Census data fail to include cash transfers as income.B.Census data fail to include the value of noncash transfers as income.C.lifetime distribution of income is less equal than the annual distribution.D.household distribution of wealth is much more equally distributed than the household distribution of income.


39.Which of the following is a noncash transfer?A.a payment to a divorced mother under TANFB.food stampsC.a social security payment to a retireeD.unemployment compensation benefits

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 20-2Topic: Income mobility; government redistribution

40.Refer to the above diagram. If line b represents the pretax and transfer distribution of income in the United States, we would expect the post-tax and transfer distribution to be:A.line a.B.line b, because taxes and transfers have no effect on income distribution.C.line c.D.line d.


41.Refer to the above diagram. If line c represents the distribution of income in 1970 in the United States, we would expect the distribution of income for 2006 to be:A.line a.B.line b.C.line c.D.line d.

AACSB: Analytical SkillsBloom's: ApplicationLearning Objective: 20-3Topic: Income mobility; government redistribution

42.Refer to the above diagram. If line c represents the distribution of income before taxes and transfers and line b represents the distribution after taxes and transfers, then taxes and transfers have:A.added to income inequality.B.decreased the Gini ratio.C.increased poverty.D.reduced real GDP per person.


43.Each of the following contributes to income inequality except:A.differences in ability and training.B.differences in job tastes.C.differences in wealth ownership.D.government transfers.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 20-2Topic: Causes of income inequality

44.If discrimination based on gender and race was eliminated, we would expect the:A.personal distribution of income to become less equal.B.personal distribution of income to become more equal.C.personal distribution of income to be unaffected.D.functional distribution of income to change in favor of profits and interest.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 20-2Topic: Causes of income inequality

45.Differences in the amounts and quality of education and training:A.combine with differences in mental, physical, and aesthetic talents to produce income inequality.B.explain none of the income inequality in the United States.C.explain nearly all the income inequality in the United States.D.have lessened in the United States in the past decade, sharply reducing income inequality.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-2Topic: Causes of income inequality

46.One cause of income inequality in the United States is:A.the free public school system.B.differences in preferences for market work relative to nonmarket activities as well as differences in preferences for types of work.C.antidiscrimination laws.D.the social security system.

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 20-2Topic: Causes of income inequality

47.Which of the following would likely reduce income inequality?A.a reduction in the number of high school dropouts.B.a reduction in social security benefits.C.greater inequality in the distribution of wealth.D.more stringent requirements to obtain occupational licenses.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 20-2Topic: Causes of income inequality

48.Income:A.is a stock concept.B.consists of accumulated assets.C.is a flow concept.D.consists of wages only.


49.Wealth:A.is a flow concept.B.refers to accumulated financial assets only.C.refers to accumulated real assets only.D.refers to accumulated financial and real assets.


50.Wealth represents:A.a stock of real and financial assets.B.a flow of income.C.financial assets only.D.real assets only.


51.Which of the following is correct?A.Income is a stock and wealth is a flow concept.B.Both income and wealth are flow concepts.C.Both income and wealth are stock concepts.D.Income is a flow and wealth is a stock concept.


52.Wealth in the United States is:A.distributed in a way that reduces the degree of income inequality.B.more unequally distributed than is income.C.less unequally distributed than is income.D.distributed in a way that has no effect on income inequality.

AACSB: Reflective Thinking SkillsBloom's: KnowledgeLearning Objective: 20-2Topic: Causes of income inequality

53.The distribution of wealth in the United States is such that it:A.is randomly distributed among income classes.B.has no perceptible impact on the distribution of income.C.reduces income inequality.D.contributes to income inequality.


54.Which is correct?A.Wealth is less equally distributed than income and therefore increases income inequality.B.Wealth is more equally distributed than income and therefore increases income inequality.C.Wealth is less equally distributed than income and therefore decreases income inequality.D.Wealth is more equally distributed than income and therefore decreases income inequality.


55.The exercise of market power by suppliers in resource markets tends to:A.reduce income inequality ensuring that all workers receive fair wages.B.have little impact on the distribution of income.C.increase income inequality by raising incomes of those able to "rig the market."D.increase income inequality but is offset by the exercise of market power in product markets.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-2Status: NewTopic: Causes of income inequality

56.Which of the following would most likely increase income inequality?A.Improvements in public education.B.Greater monopoly power among product sellers.C.Greater equality in the distribution of wealth.D.Fewer differences in working conditions across occupations.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-2Status: NewTopic: Causes of income inequality

57.The distribution of U.S. income by quintiles:A.reveals a marked increase in the relative importance of the middle class between 1970 and 2006.B.has been unchanged since 1970.C.shows a movement toward greater inequality since 1970.D.shows a movement toward greater equality since 1970.

AACSB: Reflective Thinking SkillsBloom's: KnowledgeLearning Objective: 20-3Topic: Trends in income inequality

58.Since 1970 the distribution of income has:A.remained virtually constant from year to year.B.become more equal.C.varied considerably from year to year but in general has been stable.D.become less equal.


59.Economists generally agree that the most significant cause of the recent increase in income inequality in the United States is:A.the failure of the legal minimum wage to keep pace with inflation.B.increased international competition.C.increased immigration.D.increased demand for, and hence pay to, highly skilled workers.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 20-3Topic: Trends in income inequality

60.Which of the following helps explain growing income inequality in the United States in recent years?A.reduced immigrationB.increased demand for highly skilled workersC.the falling labor force participation rate of womenD.increased power of unions

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-3Topic: Trends in income inequality

61.The term "growing income inequality" implies that the:A.poor are getting poorer in both a relative and an absolute sense.B.Lorenz curve is shifting toward the diagonal.C.diagonal is shifting toward the Lorenz curve.D.top quintile of income receivers is getting relatively more of the total income than before and the bottom quintile is getting relatively less.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-3Topic: Trends in income inequality

62.Which of the following does not help explain growing income inequality since 1970?A.the entry of unusually large numbers of less experienced workers into the labor forceB.increased import competitionC.declining returns to education as college graduates have trouble finding jobsD.increased immigration


63.Since 1980 the difference between the earnings of college graduates and high school graduates has:A.fallen, thereby increasing income inequality.B.increased, thereby increasing income inequality.C.remained constant.D.increased, thereby decreasing income inequality.


64.The entrance of large numbers of "baby boomers" into the labor force in the 1970s and 1980s:A.caused substantial reductions in permanent unemployment.B.lessened income inequality.C.increased income inequality.D.had no impact on income inequality.


65.Each of the following has contributed to growing income inequality in the United States since 1970 except:A.the decline in unionism.B.greater demand for highly skilled workers.C.stronger international competition from imports.D.government transfers.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 20-2Status: NewTopic: Causes of income inequality

66.The basic argument for income inequality is that:A.the very rich establish consumption patterns that are desirable for the rest of society to emulate.B.the rich buy luxury goods that soon become affordable to everyone else because of economies of scale.C.income inequality is essential to maintain incentives to produce.D.inequality undermines incentives and tends to reduce the size of the national income.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-4Topic: Arguments for and against inequality

67.The basic economic argument for greater income equality is that:A.an equal distribution of income is the logical outcome of any tax-transfer program.B.because citizens enjoy political equality, they are also entitled to economic equality.C.a more equal distribution of income will tend to maximize incentives to work, invest, and assume risk.D.a more equal distribution of a given amount of income will increase the total utility of consumers.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-4Topic: Arguments for and against inequality

68.Refer to the above diagrams that show identical marginal utility from income curves for Singer and Catalano. The marginal utility from income curves are drawn on the assumption that:A.Singer buys more inferior goods than does Catalano.B.Singer and Catalano have identical capacities to enjoy income.C.Catalano has a greater capacity to enjoy income than does Singer.D.Singer has a greater capacity to enjoy income than does Catalano.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 20-4Topic: Arguments for and against inequality

69.Refer to the above diagrams that show identical marginal utility from income curves for Singer and Catalano. If a given income of $20,000 is initially distributed so that Singer receives $15,000 and Catalano $5,000, the marginal utility:A.of the last dollar of income will be greater for Catalano than for Singer.B.derived from the last dollar will not be comparable as between the two income receivers.C.of the last dollar of income will be the same for both Singer and Catalano.D.of the last dollar of income will be greater for Singer than for Catalano.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 20-4Topic: Arguments for and against inequality

70.Refer to the above diagrams that show identical marginal utility from income curves for Singer and Catalano. If a given income of $20,000 is initially distributed so that Singer receives $15,000 and Catalano $5,000:A.no judgment can be made as to the effect of a redistribution of income on total utility.B.this initial distribution of income is maximizing the combined total utility of the two consumers.C.the combined total utility of the two consumers can be increased by redistributing income from Catalano to Singer.D.the combined total utility of the two consumers can be increased by redistributing income from Singer to Catalano.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 20-4Topic: Arguments for and against inequality

71.Refer to the above diagrams that show identical marginal utility from income curves for Singer and Catalano. If this initial distribution of $15,000 to Singer and $5,000 to Catalano is altered in favor of greater equality, it may be argued that:A.the combined total utility of the two consumers will decline because Catalano has a greater capacity to derive utility from income than does Singer.B.incentives to produce will be weakened and total income will decrease.C.incentives to produce will be enhanced and total income will increase.D.the combined total utility of the two consumers will decline because Singer has a greater capacity to derive utility from income than does Catalano.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 20-4Topic: Arguments for and against inequality

72.The equality-efficiency tradeoff refers to:A.the conflict between risk averters and risk takers.B.the willingness of Congress to abandon existing welfare programs in favor of a comprehensive plan to increase education and training for low-income persons.C.possible conflicts between the goals of economic efficiency and greater income equality.D.the difference between the goals of income equality and equality of economic opportunity.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-4Topic: Equality versus efficiency tradeoff

73.The equality-efficiency tradeoff suggests that:A.welfare programs stimulate incentives to work.B.inefficiencies result when income is transferred from rich to poor.C.noncash transfers are superior to cash transfers.D.economic growth is the best means of reducing poverty.


74.The equality-efficiency tradeoff best describes the:A.tradeoff between a lower benefit-reduction rate and a higher break-even level of income maintenance plans.B.failure to include noncash benefits in calculating the poverty rate.C.inequities in Temporary Assistance for Needy Households benefits among the various states.D.the choice between "more equality and less output" and "less equality and more output."


75.Gomez argues that we need to increase the nation's output. Chang contends that our top priority should be a more equal distribution of income and output. It can be correctly stated that these two goals are:A.essentially unrelated.B.complementary because the realization of one will promote fulfillment of the other.C.at least partially competing because the redistribution of income might impair incentives to work and produce.D.complementary because a more equal distribution of income always promotes economic growth.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 20-4Topic: Equality versus efficiency tradeoff

76.According to the standard government definitions, the percentage of the U.S. population now considered to be living in poverty is about:A.24.1 percent.B.20.5 percent.C.5.8 percent.D.12.3 percent.

AACSB: Reflective Thinking SkillsBloom's: KnowledgeLearning Objective: 20-5Topic: Poverty

77.In 2006, the official poverty line for a household of four in the United States was about:A.$20,000.B.$26,800.C.$9,800.D.$29,500.

AACSB: Reflective Thinking SkillsBloom's: KnowledgeLearning Objective: 20-5Status: NewTopic: Poverty

78.Which of the following demographic groups does not bear a disproportionate burden of poverty?A.households headed by womenB.persons 65 or overC.HispanicsD.African-Americans


79.The poverty rate in the United States was:A.5 percent in 2006.B.higher in 2006 than in 1960.C.lower in 2006 than in 1993.D.15 percent in 2006.


80.Which of the following groups has the highest poverty rate?A.age 65 or overB.foreign-born (non citizens)C.HispanicsD.female-headed households


81.Which of the following groups has the lowest poverty rate?A.married-couple familiesB.whitesC.foreign-born (not citizens)D.African-Americans


82.The poverty rate for African-Americans is:A.greater than for any other racial or ethnic group.B.below that for whites.C.considerably lower than that for Hispanics.D.below that for persons 65 years of age or older.


83.Which of the following would we expect to have the highest poverty rate?A.white households headed by malesB.elderly white householdsC.white households headed by femalesD.African-American households headed by females

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 20-5Topic: Poverty

84.An increase in the poverty rate:A.will necessarily shift the Lorenz curve toward the diagonal.B.will necessarily shift the Lorenz curve away from the diagonal.C.may leave the Lorenz curve unchanged.D.normally accompanies strong growth of the economy.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-5Topic: Poverty

85.The U.S. poverty rate(s) for:A.Hispanics and African-Americans both exceed 20 percent.B.African-Americans is much lower than the rate for Hispanics.C.whites is greater than the overall poverty rate.D.persons aged 65 or older is higher than for children under 18.


86.The U.S. poverty rate for:A.Hispanics is higher than that for African-Americans.B.children under 18 years of age is higher than for the overall population.C.African-Americans has increased since 1993.D.foreign-born individuals who are not citizens is below the poverty rate for the general population.


87.Which of the following measurement issues make interpretation of U.S. poverty rates difficult?A.Poverty statistics measure income rather than consumption, and some families may be able to consume above the official poverty line.B.The high cost of living in rural areas tends to result in the understatement of poverty.C.Most people below the poverty line have substantial unreported income.D.The poverty rate is adjusted for every urban and rural area, so people's poverty status changes whenever they move.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-5Topic: Poverty

88.Which of the following measurement issues make interpretation of U.S. poverty rates difficult?A.Poverty statistics measure consumption rather than income, and some families may receive income that is above the official poverty line.B.The high cost of living in urban areas tends to result in the understatement of poverty.C.Most people below the poverty line have substantial unreported income.D.The poverty rate is adjusted for every urban and rural area, so people's poverty status changes whenever they move.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-5Status: NewTopic: Poverty

89.A major difference between social insurance and welfare is that social insurance:A.exclusively involves older Americans whereas welfare is confined mainly to mothers with young children.B.forces recipients to demonstrate need while welfare does not.C.is normally financed by earmarked payroll taxes while welfare is financed out of general tax revenues.D.provides cash transfers while welfare does not.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-6Topic: Income maintenance system

90.The U.S. income maintenance program consists of two kinds of programs. They are:A.the minimum wage law and Social Security.B.antidiscrimination law and education and training programs.C.social insurance and public assistance or "welfare."D.progressive income taxes and transfer payments.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 20-6Topic: Income maintenance system

91.An example of a social insurance program is ____________, whereas an example of public assistance program is _______.A.Temporary Assistance for Needy Families; unemployment compensationB.Supplemental Security Income; unemployment compensationC.Social Security; food stampsD.Medicaid; Medicare

AACSB: Reflective Thinking SkillsBloom's: KnowledgeLearning Objective: 20-6Topic: Income maintenance system

92.Which of the following is not a social insurance program?A.TANFB.MedicaidC.Supplemental Security IncomeD.unemployment compensation


93.Which of the following is a public assistance or welfare program as opposed to a social insurance program?A.Supplemental Security Income (SSI)B.unemployment compensationC.MedicareD.Social Security


94.A major difference between social insurance and public assistance is that the:A.former is regarded as an earned right while the latter is public charity.B.latter is regarded as an earned right while the former is public charity.C.latter is financed through earmarked payroll taxes and the former is financed by general tax revenues.D.former are state and local programs while the latter are Federal programs.


95.Social Security is financed:A.by state income tax revenues.B.by payroll taxes on employees and employers.C.by Federal excise taxes.D.out of general tax revenues.


96.The primary purpose of Social Security is to:A.subsidize families in need.B.offset the progressiveness of the personal income tax.C.provide income for workers who are temporarily unemployed.D.provide income for retired and disabled workers.


97.For which of the following income-maintenance programs is aggregate spending the greatest?A.MedicareB.Social SecurityC.unemployment compensationD.TANF


98.Medicaid:A.helps finance medical expenses for those participating in the TANF and Supplemental Security Income programs.B.has been abandoned in favor of privately provided medical insurance.C.is a program of medical insurance for the aged and retired.D.is a compulsory national health insurance program which covers all adult Americans.


99.Which of the following terms describes a system of subsidized health insurance available to the aged?A.MedicareB.Supplemental Security Income (SSI)C.MedicaidD.TANF


100.Which of the following provides public assistance to those who are blind and otherwise disabled?A.MedicareB.Supplemental Security Income (SSI)C.MedicaidD.TANF


101.Which of the following provides retirement income to qualified retirees?A.MedicareB.Supplemental Security Income (SSI)C.Social SecurityD.TANF


102.Which of the following helps finance the medical expenses of individuals receiving TANF or SSI?A.MedicareB.Supplemental Security Income (SSI)C.MedicaidD.Social Security


103.The Earned Income Tax Credit:A.increases the personal income tax liability of low-income working families.B.provides a cash payment to low-income working families if their tax credit exceeds their tax liability.C.is designed to make labor force employment less attractive.D.was eliminated as part of welfare reform in 1996.


104.All but which one of the following are cash transfer programs?A.TANFB.Supplemental Security Income (SSI)C.low-rent public housingD.Social Security


105.Which one of the following would increase income inequality as measured by official Census data and the quintile distribution?A.a doubling of social security retirement benefitsB.the elimination of the food stamp programC.the elimination of the TANF programD.reduced divorce rates

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 20-6Topic: Income maintenance system

106.Which of the following would move the Lorenz curve closer to the diagonal?A.a 20 percent boost in Social Security retirement benefitsB.an increase in payroll taxesC.a reduction in the progressiveness of the Federal personal income taxD.the elimination of the TANF program

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 20-6Topic: Income maintenance system

107.The TANF program:A.is a form of social insurance.B.has been found to be unconstitutional by the Supreme Court.C.limits total lifetime welfare benefits to 5 years and requires people to work after receiving benefits for 2 years.D.perpetuates the so-called culture of poverty.


108.The TANF program is designed to:A.increase the minimum wage.B.shift people from welfare to employment.C.provide medical insurance to poverty level workers.D.provide income to the blind and disabled.


109.Since its inception in 1996, the Temporary Assistance for Needy Families (TANF) program has:A.increased, rather than reduced, the number of people on welfare.B.reduced the number of people on welfare by more than one-half.C.aided the poor by automatically increasing welfare payments when inflation occurs.D.greatly increased the unemployment rate.

AACSB: Reflective Thinking SkillsBloom's: KnowledgeLearning Objective: 20-6Topic: Welfare reform and TANF

110.African-American worker Jackson earns $30,000 per year; white worker Johnson earns $40,000 per year. On the basis of this information we can conclude that:A.it is not clear whether discrimination is present in this situation.B.there are no discriminatory forces at work in the labor market.C.Jackson is being discriminated against, but the dollar amount is unclear.D.Jackson is being discriminated against in the amount of $10,000 per year.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 20-7Topic: Taste for discrimination model

111.For an employer biased against African-Americans, the discrimination coefficient d:A.will decrease if the employer becomes more prejudiced against African-Americans.B.must equal the actual ratio of African-American to white wage rates.C.measures the amount an employer is willing to pay to hire a white rather than a African-American worker.D.varies inversely with the actual African-American-white wage ratio.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 20-7Topic: Taste for discrimination model

112.Which of the following employers is the most prejudiced? Employer:A.A whose d is $0.B.B whose d is $2.C.C whose d is $4.D.D whose d is $6.

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 20-7Topic: Taste for discrimination model

113.In the taste-for-discrimination model:A.discriminatory employers behave as if employing non-preferred-race workers adds to costs.B.individual workers are judged by the characteristics of the groups to which they belong.C.prejudiced white employers will never hire African-American workers.D.women and minorities are confined to a limited number of occupations.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-7Topic: Taste for discrimination model

114.Assume that all workers are equally productive but the wage rate for men is $12 compared to $9 for women. An employer who employs only male workers must have a discrimination coefficient of:A.more than $3.B.at most .3.C.less than $3.D.1.33 or less.

AACSB: Analytical SkillsBloom's: ApplicationLearning Objective: 20-7Topic: Taste for discrimination model

115.An employer whose discrimination coefficient is $4 will:A.refuse to hire non-preferred-race workers at any wage rate.B.hire only non-preferred-race workers if the actual non-preferred-preferred wage differential is $3 an hour.C.hire only preferred-race workers if the actual non-preferred-preferred wage differential is $3 an hour.D.hire only preferred-race workers if the non-preferred-preferred wage differential is $4.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 20-7Topic: Taste for discrimination model

116.An employer whose discrimination coefficient is zero will:A.refuse to hire African-Americans at any wage rate.B.hire only whites if African-American and white wages are the same.C.randomly hire African-American and white workers if the actual African-American-white wage differential is also zero.D.refuse to hire whites at any wage rate.


117.Suppose an employer is biased against African-Americans. If his discrimination coefficient is $2, the employer will:A.randomly hire African-American and white workers if the actual African-American-white wage differential is more than $2.B.randomly hire African-American and white workers if the actual African-American-white wage differential is less than $2.C.hire only African-Americans if the actual African-American-white wage differential is less than $2.D.hire only whites if the actual African-American-white wage differential is less than $2.


118.Suppose that wages for African-American and white workers of equal productivity are $12 and $13 an hour, respectively. If a particular firm hires only whites, its discrimination coefficient must be:A.greater than $1.B.less than $1.C.zero.D.infinity.


119.If there is a widespread bias against African-American workers, an increase in the collective discrimination coefficients of employers will:A.reduce the African-American wage rate, increase African-American employment, and lower the actual African-American-white wage ratio.B.reduce the African-American wage rate, decrease African-American employment, and lower the actual African-American-white wage ratio.C.increase the African-American wage rate, increase African-American employment, and increase the actual African-American-white wage ratio.D.increase the African-American wage rate, reduce African-American employment, and increase the actual African-American-white wage ratio.


120.In a labor market generally biased against African-Americans, a reduction in the collective discrimination coefficients of employers will:A.reduce the African-American wage rate, increase African-American employment, and lower the actual African-American-white wage ratio.B.reduce the African-American wage rate, decrease African-American employment, and lower the actual African-American-white wage ratio.C.increase the African-American wage rate, increase African-American employment, and increase the actual African-American-white wage ratio.D.increase the African-American wage rate, reduce African-American employment, and increase the actual African-American-white wage ratio.


121.Refer to the above diagram. Which of the following would be consistent with an increase in racial prejudice against African-Americans and thus an increase in the discrimination coefficients of employers, taken as a group?A.a shift in the labor demand curve from D2 to D3.B.a shift in the labor demand curve from D2 to D1.C.an increase in African-American employment from Q2 to Q3.D.an increase in the African-American wage rage from W1 to W2.


122.Refer to the above diagram. Which of the following would be consistent with a decrease in racial prejudice against African-Americans and thus in the discrimination coefficients of employers, taken as a group?A.a shift in the labor demand curve from D3 to D2.B.an increase in the African-American wage rate from W1 to W2.C.a reduction in African-American employment from Q3 to Q2.D.a decrease in the African-American wage rate from W2 to W1.


123.In the taste-for-discrimination model:A.a decline in discrimination will reduce the actual African-American-white wage ratio.B.an increase in collective discrimination coefficients of employers will reduce the demand for African-American workers, decrease the African-American wage, and increase African-American employment.C.firms that discriminate will have lower costs than firms that do not discriminate.D.competitive forces will tend to reduce discrimination in the very long run.


124.An implication of the taste-for-discrimination model is that:A.discrimination can lower a firm's production costs.B.discrimination will move a firm along its declining average total cost curve.C.other things equal, nondiscriminating firms will have lower production costs than discriminating firms.D.other things equal, discriminating firms will have lower production costs than nondiscriminating firms.


125.An employer is prejudiced, prefers to hire white rather than African-American workers, and is willing to pay higher wages to obtain white workers. This illustrates:A.reverse discrimination.B.the crowding model.C.the taste-for-discrimination model.D.statistical discrimination.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 20-7Topic: Taste for discrimination model

126.Statistical discrimination refers to:A.the crowding of women or minorities into low-paying occupations.B.significant differences in average levels of earnings by gender, race, and ethnicity, after accounting for nondiscriminatory factors.C.making individual hiring decisions on the basis of the characteristics of the group to which a person belongs, rather than on his or her personal characteristics and productivity.D.the 50-percent unexplained residual in studies that try to account for wage differences by gender, race, and ethnic origin.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 20-7Topic: Statistical discrimination

127.Statistical discrimination:A.is malicious.B.is profitable, but not malicious.C.cannot persist because of competition.D.explains all occupational discrimination.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-7Topic: Statistical discrimination

128.Insurance companies require male drivers under age 25 to pay higher insurance rates than female drivers under age 25. Craig Raymond, however, is a safer driver than the average female driver under age 25. Craig's higher insurance rate reflects:A.monopoly power.B.statistical discrimination.C.the insurance firm's taste for discrimination.D.human-capital discrimination.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 20-7Topic: Statistical discrimination

129.Statistical discrimination:A.can persist in the long run if differences in average characteristics among groups continue.B.will tend to diminish in the long run, because nondiscriminating firms will drive out discriminating firms.C.requires that employers have discrimination coefficients greater than zero.D.is also known as occupational segregation.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-7Topic: Statistical discrimination

130.Which of the following is an example of statistical discrimination?A.An employer hires only white workers even though there are otherwise identical African-American workers available at lower pay.B.Women students in college business schools are overrepresented in human resource management courses and underrepresented in finance courses.C.A young woman who plans to work for only five to seven years after graduating college decides that getting an advanced degree "just won't pay off."D.A firm hires a man rather than a woman for a specific job because, on average, women have higher rates of absenteeism than do men.


131.Suppose Gigantic Health Cooperative doesn't hire Mandy Morrison solely because she is a graduate of a particular foreign medical school, which is not known for the high quality of its graduates. Yet, Mandy is actually more qualified than the average graduate of American medical schools. This is an example of:A.monopsony exploitation.B.human-capital discrimination.C.statistical discrimination.D.irrational behavior.


132.Suppose Copernicus Corporation hires Damon Danielson rather than Elmer Ellison, simply because Damon is a graduate of an Ivy League school while Elmer is a graduate of a small public university. Elmer is actually more qualified than Damon. This is an example of:A.statistical discrimination.B.irrational behavior.C.monopsony exploitation.D.human-capital discrimination.


133.A particular woman is denied on-the-job training because women on average are more likely to drop out of the workforce than men. This illustrates:A.occupational segregation.B.the crowding model.C.the taste-for-discrimination model.D.statistical discrimination.


134.The crowding model of discrimination suggests that:A.women and selected minorities are systematically excluded from high-paying occupations and crowded into low-paying occupations, decreasing their wages and reducing domestic output.B.employers having high discrimination coefficients will be crowded out by nondiscriminating employers in the long run.C.firms will base hiring decisions on group averages, rather than on individual characteristics and productivity.D.occupational segregation is largely the result of freely made rational choices of women and minorities.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 20-7Topic: Crowding model

135.The crowding of women and minorities into a restricted number of occupations:A.has no impact on the size of the domestic output or its distribution in the long run.B.will increase the size of the domestic output and make its distribution more equal.C.will decrease the size of the domestic output and make its distribution less equal.D.will increase the size of the domestic output, but make its distribution less equal.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-7Topic: Crowding model

136.A minority person is prohibited from entering certain high paying occupations. This illustrates:A.human-capital discrimination.B.the crowding model.C.the taste-for-discrimination model.D.statistical discrimination.


137.The crowding model is primarily concerned with explaining:A.occupational discrimination.B.human-capital discrimination.C.the size of the discrimination coefficient.D.why affirmative action is reverse discrimination.

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 20-7Topic: Crowding model

Assumptions: (1) the labor force is comprised of 9 million men and 9 million women workers; (2) the economy has 3 occupations, X, Y, and Z, each having identical demand curves for labor; (3) men and women workers are homogeneous with respect to their labor-market capabilities; (4) women are discriminated against by being excluded from occupations X and Y and are confined to Z; and (5) aside from discrimination, the economy is competitive.

138.Refer to the above diagram and list of assumptions. Under these circumstances 9 million women will be employed in occupation Z:A.5 million men in X, and 4 million men in Y.B.3 million men in XD, and 6 million men in Y.C.6 million men in X, and 3 million men in Y.D.and 4.5 million men each in occupations X and Y.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 20-7Topic: Crowding model

139.Refer to the above diagram and list of assumptions. The allocation of employment determined in the previous question will result in which of the following wage structures?A.Men and women will both be paid $5.B.Men will be paid $5 and women $4.C.Men will be paid $6.50 and women $3.D.Women and men will both be paid $6.50.

AACSB: Analytical SkillsBloom's: AnalysisTopic: Crowding model

140.Refer to the above diagram and list of assumptions. If discrimination is ended:A.men will leave occupations X and Y and enter occupation Z.B.4 million women will leave occupation Z, with 2 million entering occupation X and 2 million entering occupation Y.C.3 million women will leave occupation Z, with 1.5 million entering occupation X and 1.5 million entering occupation Y.D.3 million women will leave occupation Z, all of whom will enter industry X.


141.Refer to the above diagram and list of assumptions. If discrimination is ended, women:A.and men will both receive a wage rate of $4.B.and men will both receive a wage rate of $5.C.and men will both receive a wage rate of $6.D.will receive a wage rate of $4 and men will receive a wage rate of $5.


142.Refer to the above diagram and list of assumptions. The elimination of gender discrimination:A.may either increase or reduce real domestic output, depending on what happens to the level of wages.B.will increase real domestic output.C.will have no effect on real domestic output.D.will reduce real domestic output.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 20-7Topic: Crowding model

143.As applied to gender discrimination, the crowding model of occupational segregation:A.helps explain why women earn more than men.B.predicts that men's wages would fall and women's wages would rise if occupational segregation was eliminated.C.predicts that domestic output would decline if occupational segregation was ended.D.predicts that competition will eventually totally end discrimination.


144.Discrimination creates a:A.redistribution of a larger domestic output.B.larger domestic output but no redistribution.C.smaller domestic output but no redistribution.D.redistribution of a smaller domestic output.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-7Topic: Costs of discrimination

145.Discrimination:A.affects the distribution of domestic output and income, but not its total size.B.is shown as some point outside of an economy's production possibilities curve.C.places the economy at some point inside of its production possibilities curve.D.affects the total size of domestic output and income, but not its distribution.


146.Economic discrimination puts the economy inside its production possibilities curve because discrimination:A.redistributes income from low-paid to high-paid persons.B.promotes present consumption rather than production of capital goods.C.arbitrarily blocks women and certain minorities from higher-productivity, higher wage jobs and thus keeps the economy from producing its maximum output.D.often causes inflation, which reduces the nation's real output.


147.In the above diagram, economic discrimination is best represented by point:A.A.B.C rather than D or E.C.E rather than D or C.D.F.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 20-7Topic: Costs of discrimination

148.In the above diagram, the elimination of discrimination is best represented by:A.a move from C to E.B.an inward shift of the production possibilities curve.C.a move from A to D.D.a move from E to C.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 20-7Topic: Costs of discrimination

149.(Consider This) According to economists Krueger and Perri:A.Despite the fact that income inequality has increased in recent decades, consumption inequality has remained relatively constant.B.Increases in income inequality over recent decades understate the growth in consumption inequality.C.Both income and consumption inequality have increased at approximately the same rate over recent decades.D.Both income and consumption are more equally distributed than they were 30 years ago.

AACSB: Reflective Thinking SkillsBloom's: KnowledgeLearning Objective: 20-3Status: NewTopic: Trends in income inequality

150.(Consider This) According to The Economist magazine, growing income inequality is less of a concern because:A.it is increasing at a decreasing rate.B.the poor have increasingly better access to goods and services once only available to the rich.C.poverty rates have fallen below 10 percent.D.government transfers eliminate virtually all consumption inequality.

AACSB: Reflective Thinking SkillsBloom's: KnowledgeLearning Objective: 20-3Status: NewTopic: Trends in income inequality

151.(Consider This) In "Slicing the Pizza" the shrinkage of the pizza refers to the:A.fact that poor people are not helped by the income maintenance system.B.efficiency losses-the losses of output and income-associated with the tax-transfer system.C.tendency of rich people in developing nations to hoard their wealth overseas.D.failure of the Internal Revenue Service to collect all the tax revenues owed by taxpayers.


152.(Consider This) The main focus of the vignette "Slicing the Pizza" is the:A.equality-efficiency tradeoff.B.principal-agent problem.C.impact of market power on economic efficiency.D.the highly unequal distribution of U.S. wealth.


153.(Last Word) Between 1995 and 2004 in the United States:A.average U.S. household wealth increased and median household declined.B.average U.S. household wealth declined and median household wealth increased.C.both average and median U.S. household wealth declined.D.both average and median U.S. household wealth increased.


154.(Last Word) In 2004, the wealthiest 1 percent of U.S. households held ____ percent of U.S. household wealth.A.33.4B.69.5C.82.4D.26.8


155.(Last Word) Between 1995 and 2004:A.the distribution of U.S. household wealth became more unequal.B.the distribution of U.S. household wealth become less unequal.C.median U.S. household wealth, adjusted for inflation, surpassed average household wealth.D.median U.S. household wealth, adjusted for inflation, declined.


True / False Questions

156.After the implementation of TANF, the U.S. welfare rolls fell by more than one-half between 1996 and 2007.TRUE


157.Government transfer programs result in a U.S. Lorenz Curve that is closer to the diagonal line than would be the case without the programs.TRUE


158.A curve showing the quintile distribution of a nation's income is called the Gini Curve.FALSE


159.TANF stands for Temporary Assistance for Needy Families.TRUE


160.In the United States since 1970, the poor have gotten poorer and the rich have gotten richer in both relative and absolute terms.FALSE


161.The top 20 percent of U.S. income earners receive nearly 80 percent of total U.S. income.FALSE

Learning Objective: 20-2Topic: Income inequality; Lorenz Curve

162.Currently over 90 percent of all workers in the United States are covered by Social Security.TRUE


163.Social Security is financed by payroll taxes levied on both employers and employees.TRUE


164.Unemployment compensation is financed by taxes levied on employers.TRUE


165.The closer the Lorenz curve is to the diagonal, the greater is the degree of income inequality.FALSE

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 20-1Topic: Income inequality; Lorenz Curve

166.The U.S. poverty rate for the elderly (65 and over) is higher than for the general population.FALSE


167.The standard data on income distribution do not include the value of noncash transfers as income.TRUE


168.The U.S. poverty rate was considerably lower in 2006 than in 1960.TRUE


169.The U.S. poverty rate for African-Americans is substantially higher than that for Asians.TRUE


170.Labor market discrimination increases the size of the nation's GDP.FALSE


171.An employer (biased against African-Americans) whose discrimination coefficient is $5 will hire only whites if the actual African-American-white wage gap is $7.FALSE


172.A reduction in the collective discrimination coefficients of employers will increase the wage rate of those discriminated against, but reduce their employment.FALSE


173.Statistical discrimination is also known as occupational discrimination.FALSE

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 20-7Topic: Statistical discrimination

174.The crowding model of occupational segregation predicts that domestic output will increase if occupational segregation is ended.TRUE


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Economic Chapter 20