CH 19. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

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1 Class: Date: CH 19 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. In the United States, the poorest 20 percent of the household receive approximately percent of total income. a. 3.5 b. 7.5 c. 9.5 d e In the United States, the richest 20 percent of households receive approximately percent of total income. a. 33 b. 12 c. 50 d. 75 e Which of the following statements is true regarding the distribution of income in the United States? a. The Lorenz curve shows that incomes are distributed fairly. b. The line of equality shows that incomes are distributed equally. c. Income inequality occurs because the richest 20 percent of households receive about 50 percent of income. d. The inequality in the distribution of income can be seen because the Lorenz curve lies above the line of equality e. Both answers C and D are correct. 4. A Lorenz curve a. plots the average income of households against the number of households. b. plots the cumulative percentage of income against the cumulative percentage of households. c. can be drawn only for income not for wealth. d. plots household's average income against the number of households. 5. If we compare the Lorenz curves for income distribution in all the world's nations to the line of equality, we find that the Lorenz curves for a. some nations are above and for some nations are below the 45 line but for no nations are on the 45 line. b. all nations are above the 45 line. c. all nations are below the 45 line. d. some nations are above, for some nations are below the 45 line, and for some nations are on the 45 line. 1

2 6. The above table shows the distribution of income in two countries, Alpha and Beta. In Country Beta, the richest 40 percent of households receive percent of total income. a. 20 b. 40 c. 60 d. 80 e Comparing the wealth and income distribution in the United States, we see that a. wealth is distributed less equally than income. b. because wealth and income are different terms for the same thing, the distributions are the same. c. income is distributed less equally than wealth. d. we cannot compare the distribution of wealth and income. 8. In the United States, the a. distribution of income has become more equal since b. distribution of wealth has become more equal since c. Lorenz curve for income is closer to the line of equality than is the Lorenz curve for wealth. d. Lorenz curve for wealth is closer to the line of equality than is the Lorenz curve for income. e. Lorenz curve for income and the Lorenz curve for wealth are equally close to the line of equality. 9. Which of the following statements is correct? a. Wealth inequality in the United States is greater than income inequality. b. Income inequality in the United States is greater than wealth inequality. c. Income includes all the things owned by a household at a certain point in time. d. The top fifth of households have a greater share of the nation's income than the nation's wealth. e. The fraction of wealth owned by the bottom 20 percent of households is larger than the fraction income earned by the bottom 20 percent of households. 10. Looking at the income distribution in the United States since 1967, we see that a. only the lowest 20 percent and highest 20 percent increased their shares of income. b. the lower 50 percent increased its share of income and the upper 50 percent stayed the same. c. the highest 20 percent increased its share of income. d. all the 20 percent groups increased their shares of income. e. the lower 50 percent increased its share of income and the upper 50 percent decreased its share of income. 2

3 11. The income distribution in the United States has a. become more equal since b. become less equal since c. not changed its degree of inequality since d. changed so that the distribution in 2005 is no longer comparable to that in The factor that leads to the largest difference in households' incomes is a. race. b. education. c. gender. d. size of household. e. location of household. 13. The highest-income household in the United States today is likely to be a college-educated a. married white couple. b. single white female. c. married Asian couple. d. single black male. e. single black female. 14. The measured inequality of annual income the actual inequality of lifetime income because. a. overstates; different households are at different stages in the life cycle b. overstates; the Lorenz curves differ for income and wealth c. understates; people live in different geographic areas d. understates; people have different levels of education e. overstates; different households have different amounts of wealth 15. Poverty is concept because. a. a relative; a very low income in the United States is a very high income in a less developed country b. an absolute; a very low income in the United States is a very high income in a less developed country c. a relative; Lorenz curves differ for different countries d. an absolute; Lorenz curves differ for different countries e. an absolute; there are poor people in every nation 16. In the United States in 2004, the poverty level for a four-person household was approximately a. $9,900. b. $29,500. c. $37,000. d. $19,150. e. $51, In the United States in 2004, a family of four was considered to be living below the poverty line only if its household income was less than approximately a. $400 per year. b. $4,000 per year. c. $11,789 per year. d. $19,150 per year. e. $28,800 per year. 3

4 18. In 2004, the number of people in the United States who lived in households with incomes below the poverty level was approximately a. 50 million. b. 37 million. c. 11 million. d. 4 million. e. 62 million 19. Looking at the U.S. poverty rate by race, we see that a. the poverty rates by race are now equal. b. whites have a higher poverty rate than do blacks. c. Hispanics and blacks have a higher poverty rate than whites. d. whites have a nearly zero poverty rate while Hispanics and blacks are near 20 percent. e. whites and blacks have higher poverty rates than do Hispanics. 20. The demand for labor i. depends on the availability of labor. ii. decreases when the supply of labor increases. iii. depends on the value of the marginal product of labor. a. i only. b. i and ii. c. iii only. d. i and iii. e. i, ii, and iii. 21. One reason why economists earn more than Taco Bell workers is because economists have a value of marginal product when compared to Taco Bell workers. a. lower b. higher c. similar d. convex e. concave 22. The gap between the salary of Tom Cruise and an unknown actor is over $15 million per movie. This difference means that Mr. Cruise's value of marginal product is a. over $15 million greater than the value of the marginal product of the unknown actor. b. less than $15 greater than value of the marginal product of the unknown actor. c. $15 million greater than the value of the marginal product of the unknown actor. d. equal to the value of the marginal product of the unknown actor. e. More information is need to make the comparison. 23. Looking at wage differentials between white men and other groups in the United States, we see that a. white men and black men earn about the same but women of all races earn less. b. white men earn more than black men but white women earn less than black men. c. black men earn less than white men and slightly less than white women. d. white men and white women earn about the same but minorities earn less. e. black men and men of Hispanic origin earn about the same amount and both groups of men are paid more than black women and women of Hispanic origin. 4

5 24. In the United States, the federal and state income tax system is a. progressive. b. proportional. c. regressive. d. a flat-rate tax. 25. One of the major sources of deadweight loss is the fact that taxing people's income from their work and savings leads to incentives to work and save, which in turn leads to a output. a. lower; lower b. higher; higher c. lower; higher d. higher; lower e. no change in; no change in 26. Discrimination a. can be corrected by imposing a negative income tax. b. cannot explain economic inequality. c. immediately results in an unequal ownership of capital. d. is more likely to occur in a business where customers come into contact with minority employees. e. means that the costs paid by people who discriminate are lower than otherwise. 27. Which of the following statements correctly describes how taxes redistribute income across different households in an economy? a. The richest 40 percent of households increase their share of income. b. The poorest 60 percent of households increase their share of income. c. A negative income tax operates like a progressive income tax on the rich. d. The poorest 20 percent of households receive 20 percent of their income from the government. e. The richest 20 percent of households increase their share of income and the poorest 20 percent decrease their share of income. 28. Because the richest 20 percent of households receive almost half of the total income, it is certain that a. income is unequally distributed. b. wealth is unequally distributed. c. income is equally distributed. d. wealth is equally distributed. e. the richest 20 percent of households have more income than they need. 29. What variable is on the y-axis of a Lorenz curve? a. price b. quantity c. the cumulative percentage of households d. the cumulative percentage of income e. the percentage of total income 30. Which of the following households is most likely to have the lowest income? a. a black man between the ages of 30 and 50 b. an Hispanic woman with college degree c. a black woman over 65 with fewer than nine years of education d. a white man with a high school diploma e. a household with a married Hispanic couple in which one partner has an associate's degree and the other a bachelor's degree 5

6 31. Measured annual income inequality overstates actual lifetime inequality because a. poverty levels vary across states. b. homeless people are not always counted. c. different households are in different stages in the life cycle. d. people tend to overstate their incomes. e. people differ in the amount of education they have attained. 32. Which of the following is correct about the United States? a. Income is distributed less equally than wealth. b. Wealth is equally distributed but income is not. c. Income is equally distributed but wealth is unequally distributed because of inheritances. d. Both wealth and income are unequally distributed. e. Both wealth and income are equally distributed. 33. If the income distribution is more unequal than the wealth distribution, then the a. Lorenz curve for income will be farther away from the line of equality than the Lorenz curve for wealth. b. government has imposed a higher tax rate on income. c. Lorenz curve for wealth will be farther away from the line of equality than the Lorenz curve for income. d. Lorenz curve for wealth will lie above the Lorenz curve for income. e. It is not possible to draw the Lorenz curve for wealth on the same figure with the Lorenz curve for income. 34. In the United States, the wealthiest 1 percent of households held approximately percent of all wealth. a. 1 b. 13 c. 27 d. 38 e Which of the following statements about poverty is (are) correct? i. Blacks and Hispanics have higher poverty rates than whites. ii. Over the last 40 years, poverty rates for all groups have generally increased. iii. Most household spells of poverty last well beyond 9 months. a. i only. b. ii only. c. iii only. d. ii and iii. e. i, ii, and iii. 36. How can an individual acquire human capital? a. attending higher education or on-the-job training b. investing in a high-growth stock or bond c. being born with a family that owns human capital d. buying land e. It is impossible for a person to obtain more human capital than the amount he or she inherits. 6

7 37. The demand curve for high-skilled workers a. lies to the right of the demand curve for low-skilled workers. b. lies to the left of the demand curve for low-skilled workers. c. is vertical. d. is horizontal. e. lies to the right of the demand curve for low-skilled workers at high wages and to the left of the demand curve for low-skilled workers at low wages. 38. Which of the following is (are) a difference between high-skilled workers and low-skilled workers? i. High-skilled workers have a higher value of marginal product. ii. High-skilled workers have incurred lower opportunity costs to acquire their skills. iii. The demand for high-skilled workers exceeds that for low-skilled workers. a. i only. b. ii and iii. c. i and ii. d. i and iii. e. i, ii, and iii. 39. Skills are costly to acquire. What forms do these costs take? i. out-of-pocket expenditures to pay for more education ii. a higher value of marginal product iii. forgone earnings while attending higher education a. i only. b. ii only. c. iii only. d. i and iii. e. i, ii, and iii. 40. The more costly it is to acquire a skill, the a. more people will go to school to learn the skill. b. less employers are willing to pay for the skill. c. greater the wage differential between high-skilled and low-skilled workers. d. smaller the wage differential between high-skilled and low-skilled workers. e. the demand for workers with that skill exceeds the demand for workers without that skill. 41. The larger the value of the marginal product of a skill, the a. larger the vertical difference between the demand curves for high- and low-skilled labor. b. smaller the vertical difference between the demand curves for high- and low-skilled labor. c. larger the vertical distance between the supply curves for high- and low-skilled labor. d. smaller the vertical distance between the supply curves for high- and low-skilled labor. e. higher is the wage rate at which the demand curve for high-skilled workers crosses the demand curve for low-skilled workers. 42. If discrimination against women decreases their value of marginal product, then women will have wage rate than men and there will be high-paying jobs for women. a. a lower; more b. a higher; fewer c. a lower; fewer d. a higher; more e. the same; fewer 7

8 43. is a component of welfare programs. a. A progressive income tax b. Unemployment compensation c. Medicaid d. Social Security payroll taxes e. The negative income tax 44. Welfare programs provide income to a. people that do not qualify for Social Security or unemployment compensation. b. guarantee that people do not fall below the poverty level. c. those people already receiving unemployment compensation. d. provide subsidized services. e. people whose market income is more than their money income. 45. The welfare program, Supplementary Security Income (SSI), a. provides all citizens with a guaranteed minimum income. b. helps the neediest elderly, disabled, and blind people. c. provides needed services to low-income households. d. gives medical care to the indigent. e. gives older people free food. 46. Recent changes in the welfare program a. have made it an open-ended entitlement program. b. limit assistance to five years. c. have eliminated work and public service requirements. d. have hurt economic incentives to work. e. have made it into a negative income tax program. 47. Which of the following characterizes the negative income tax concept? a. It is a flat tax that lower-income households do not pay. b. It is a progressive tax structure with enough deductions to provide refunds to some. c. It is a regressive tax with low-income earners getting a refund back when taxes are filed. d. It is a guaranteed annual income with market incomes taxed at a flat rate. e. It is an income tax that eliminates all the inefficiency that occurs with the current tax system. 48. With a negative income tax that has a $10,000 guaranteed income and a 25 percent tax rate, a household that has a market income of $4,000 has a total income of a. $15,000. b. $14,000. c. $13,000. d. $10,000. e. $7, Of the following types of income tax systems, the one that provides the greatest amount of redistribution from the rich to the poor is a a. progressive income tax. b. proportional income tax. c. regressive income tax. d. flat-rate income tax. e. money-income tax. 8

9 50. Which of the following measures shows the most equality? a. money income b. market income c. income after taxes and benefits d. wealth e. money wealth 9