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Chapter 12 Practice Quiz

Income Distribution, Poverty, and Discrimination

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1. Currently, the wealthiest 5 percent of all U.S. families earned what percentage of total annual money income among families?

a. More than 20 percent. b. Less than 10 percent. c. More than 25 percent. d. More than 50 percent.

A. See Exhibit 1 in the text.

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2. A figure that measures the relationship between the cumulative percentage of money income on the vertical axis and the cumulative percentage of families on the horizontal axis is called the a. family-income curve.

b. Washington curve.c. Lorenz curve.d. Gini curve.

C. See Exhibit 4 in the text.

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80

60

40

20

20 40 60 80 Cu

mu

lati

ve p

erce

nt

of m

oney

inco

me

100

100 Y

X

Z

W

Cumulative percentage of families

Exhibit 11 Lorenz Curve

•°

•

•°

•°

°

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3. As shown in Exhibit 11, the perfect equality line is drawn between points

a. W and Y along the curve.b. X and Z.c. W and Y along the straight line.d. W and X.

C. Along 45 degree line WY percentages on the x-axis and y-axis are equal.

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4. As shown in Exhibit 11, 20 percent of families earned a cumulative share of about _______ percent of income.

a. 5.b. 10.c. 30.d. 50.

A. Read 20% on the x-axis and 5% on the y-axis.

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5. As shown in Exhibit 11, 40 percent of families earned a cumulative share of

about _________ percent of income. a. 5.b. 15.c. 30.d. 50.

B. Read 40% on the x-axis and 15% on the y-axis.

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6. Since 1929, the overall family income distribution in the United States has become

a. much more unequal.b. much less unequal.c. slightly more unequal.d. slightly more equal.

D. See Exhibit 5 in the text.

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7. Comparing the family income distributions of the United States, the Czech Republic, and Brazil, the conclusion is that income is distributed a. most equally in Brazil.

b. most equally in the United States.c. about the same in all three countries.d. most equally in Czech Republic.

D. See Exhibit 6 in the text.

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8. To establish the poverty line that divides poor and nonpoor families, the government

a. multiplies the cost of a minimal diet by 3.b. multiplies the cost of a minimal diet by 5.c. adds 50 percent to cost of a minimal diet.d. adds 100 percent to cost of a minimal diet.

A. Absolute poverty can be defined in dollars to purchase some minimum amount of goods and services essential to meeting a person or family’s basic needs.

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9. The poverty line a. is defined as one-half average family

income.b. includes in-kind transfers.c. includes Medicaid benefits.d. has been attacked for overstating poverty.

D. The poverty line does not include noncash transfers, such as food stamps and Medicaid.

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10. Which of the following is an in-kind transfer?

a. Social Security payments. b. Unemployment compensation. c. Food stamps. d. Welfare payments.

C. Social Security payments, unemployment compensation and welfare payments are cash transfer payments included in the poverty line.

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11. Which of the following is a cash assistance (not an in-kind transfer) program?

a. Temporary Assistance to Needy Families (TANF).

b. Medicare. c. Medicaid. d. Food stamps.

A. Medicare and Medicaid provide medical care services and food stamps are used for food. TANF provides cash that can be used to purchase goods and services chosen by recipient.

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12. The negative income tax (NIT) is a plan under which families

a. above a level of income pay no tax. b. pay the same tax rate except for the poor.c. below a level of income pay no tax.d. below a level of income receive a cash

payment.

D. See Exhibit 9 in the text.

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13. Which of the following might decrease the supply curve of labor?

a. Discrimination against African-Americans.

b. Discrimination against women. c. Difficult licensing requirements. d. All of the above.

D. Discrimination against African-Americans and women and different licensing requirements reduce the number of workers who are willing to work at various possible wage rates.

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Tax

Exhibit 12 Negative Income Tax

0 10 20 30 40 50 60 70

-20

-10

0

10

20

Family of four income(thousands of dollars per year)

Tax liability(thousands of dollars per year)

..•

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14. As shown in Exhibit 12, a family of four pays income taxes at

a. an income of $5,000. b. any income between zero and $40,000. c. all levels of income. d. any income above $40,000.

D. At any income below the break-even income of $40,000, a family receives payments from the government.

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15. As shown in Exhibit 12, a family of four with no earned income receives ____ from the government. a. zero payment b. the break-even income of $40,000 c. a $20,000 payment d. a $20,000 tax deferment

C. At zero income, payment is read on the vertical axis as $20,000 (a negative tax liability).