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Chapter 20
The Distribution of Income
MULTIPLE CHOICE
1. The government’s policies enacted to make the distribution of income more equitable causes all of the following
EXCEPT,
a. a less efficient allocation of resources.
b. a distortion of incentives.
c. altered behavior.
d. All of the above are correct.
ANSWER: d. All of the above are correct.
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2. In the US, labor earnings are what percent of total income?
a. 75 percent
b. 70 percent
c. 65 percent
d. 50 percent
ANSWER: a. 75 percent
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3. All of the following are problems with measuring inequality, EXCEPT that
a. the measurements usually do not include in-kind transfers.
b. the measurements use lifetime incomes rather than annual incomes.
c. the measurements should use permanent income, not including transitory changes.
d. poverty is long term for relatively few families.
ANSWER: b. the measurements use lifetime incomes rather than annual incomes.
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4. The invisible hand of the marketplace acts to allocate resources
a. efficiently, but does not necessarily ensure that resources are allocated fairly.
b. fairly, and ensures that resources are allocated efficiently.
c. fairly, but does not necessarily ensure that resources are allocated efficiently.
d. efficiently, and ensures that resources are allocated equitably.
ANSWER: a. efficiently, but does not necessarily ensure that resources are allocated fairly.
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5. The marketplace acts to allocate resources
a. fairly.
b. to those most desiring them.
c. efficiently.
d. efficiently and equitably.
ANSWER: c. efficiently.
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6. The government enacts policies to make the
a. distribution of income more efficient.
b. distribution of income more fair.
c. redistribution of income more efficient.
d. redistribution of income more efficient and fair.
ANSWER: b. distribution of income more fair.
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7. A person’s earnings depend on
a. whether or not the economy is experiencing inflation.
b. how well the economy is doing.
c. how much profit her employer is able to make.
d. the supply and demand for that person’s labor.
ANSWER: d. the supply and demand for that person’s labor.
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8. Labor earnings make up what part of total income in the U.S. economy?
a. all of it
b. three-fourths
c. one-half
d. one-fourth
ANSWER: b. three-fourths
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9. The income distribution in a society is largely
a. determined by the government’s policies.
b. determined by business decisions.
c. determined by factors that determine wages.
d. independent of market allocations of resources.
ANSWER: c. determined by factors that determine wages.
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10. In general, the invisible hand of the marketplace acts to allocate resources
a. neither efficiently nor fairly.
b. fairly, but not necessarily efficiently.
c. efficiently and fairly.
d. efficiently, but not necessarily fairly.
ANSWER: d. efficiently, but not necessarily fairly.
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11. When a government enacts policies that redistribute income, all of the following will occur EXCEPT:
a. the government will distort incentives.
b. a fair distribution of income will be ensured.
c. people will alter their market behavior.
d. markets will become less efficient at allocating resources to their highest valued use.
ANSWER: b. a fair distribution of income will be ensured.
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12. A government’s policy of redistributing income makes the income distribution more equitable,
a. distorts incentives and makes the allocation of resources more efficient.
b. alters behavior and makes the allocation of resources more efficient.
c. distorts incentives and alters behavior.
d. distorts incentives and makes the allocation of resources less efficient.
ANSWER: d. distorts incentives and makes the allocation of resources less efficient.
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13. All of the following are questions that need to be answered by a measurement of the distribution of income,
EXCEPT:
a. How much inequality is there in our society?
b. How many people live in poverty?
c. How often do people receive raises?
d. What problems arise in measuring the amount of inequality?
ANSWER: c. How often do people receive raises?
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14. Income inequality in an economy is traditionally measured by
a. calculating the bell curve of ability, effort and chance that exists in an economy.
b. calculating the percentage of families that fall into broad income classifications.
c. referring to standard international distribution tables.
d. using something like the normal distribution.
ANSWER: b. calculating the percentage of families that fall into broad income classifications.
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15. Studying poverty and inequality of income helps to answer the question:
a. What are people’s wages?
b. How much experience is needed in different jobs?
c. How much inequality is there in society?
d. How do people adjust their behavior due to taxation?
ANSWER: c. How much inequality is there in society?
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16. Comparison of the measures for household income distribution among countries reveals the
a. differences in income accounting procedures.
b. difficulty of making comparisons due to differences in how data are collected.
c. task is impossible, since each country measures income in a different currency.
d. task is relatively simple since international agreements require countries to standardize their income accounting
procedures.
ANSWER: b. difficulty of making comparisons due to differences in how data are collected.
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17. If income were equally distributed among households,
a. the household’s relative share of income would increase.
b. the household’s relative share of income would decline.
c. 50 percent of the households would receive exactly 50 percent of the income.
d. all households would become rich.
ANSWER: c. 50 percent of the households would receive exactly 50 percent of the income.
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18. When measuring income distribution, the income share of the top fifth of all families is
a. over 50 percent.
b. about 10 times the income of the bottom fifth.
c. around 25 percent.
d. not much different from the income of the top 5 percent.
ANSWER: b. about 10 times the income of the bottom fifth.
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19. The recent rise in inequality from 1970 to 2000 can be at least partially explained by
a. increased international trade with low-cost countries.
b. changes in technology.
c. a reduction in the demand for unskilled labor.
d. an increase in minimum wages.
ANSWER: a. increased international trade with low-cost countries.
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20. The women’s movement has had its greatest impact on women from
a. low-income households.
b. low- to middle-income households.
c. middle-income households.
d. high-income households.
ANSWER: d. high-income households.
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21. Based on data from 2000, approximately what percent of all income in the United States did the top fifth of all
families receive?
a. 78 percent
b. 47 percent
c. 32 percent
d. 4 percent
ANSWER: b. 47 percent
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22. Based on U.S. income data from 2000, approximately what percent of all income did the bottom fifth of all families
receive?
a. 48 percent
b. 12 percent
c. 8 percent
d. 4 percent
ANSWER: d. 4 percent
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23. Based on U.S. income data from 2000, the top fifth of all families received approximately how many times as much
income as the bottom fifth?
a. 10
b. 5
c. 3
d. 2
ANSWER: a. 10
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24. U.S. income data over the last sixty years suggests that the distribution of income
a. has gradually become more equal over the entire time period.
b. has gradually become less equal over the entire time period.
c. gradually became less equal until about 1970, and then reversed itself.
d. gradually became more equal until about 1970, and then reversed itself.
ANSWER: d. gradually became more equal until about 1970, and then reversed itself.
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25. Evidence suggests that the women’s movement has
a. decreased income inequality across households.
b. increased income inequality across households.
c. had no effect on the distribution of income across households.
d. decreased the importance of traditional measures of income inequality.
ANSWER: b. increased income inequality across households.
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26. Part of the increase in inequality measures is due to
a. the urbanization of society.
b. the women’s movement.
c. technological change.
d. the migration of low-income jobs out of urban centers.
ANSWER: b. the women’s movement.
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27. A measurement instrument of the distribution of income in our society must
a. explain inequality.
b. explain why people live below poverty.
c. tell how many people live in poverty.
d. All of the above are correct.
ANSWER: c. tell how many people live in poverty.
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28. The U.S. distribution of income
a. became more fair up to 1970 and less fair after.
b. became less equitable since 1935.
c. has been remarkably stable over time.
d. has averaged over 50 percent in the top fifth income bracket since 1935.
ANSWER: a. became more fair up to 1970 and less fair after.
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29. A table of quintiles (fifths) of the 2000 U.S. income distribution reports
a. 50 percent of income in the lower 3 fifths.
b. 40 percent of income in the upper 2 fifths.
c. over 20 percent of income in the top fifth.
d. over 70 percent of income in the top 2 fifths.
ANSWER: d. over 70 percent of income in the top 2 fifths.
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30. A cross-country comparison of income distributions suggests that the United States
a. has one of the most unequal income distributions.
b. has a higher percentage of poor families, and a higher percentage of rich families than most countries.
c. has a distribution is somewhere in the middle of the pack.
d. has one of the most equal income distributions.
ANSWER: c. has a distribution is somewhere in the middle of the pack.
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31. The country that has the highest inequality of income is
a. the United States.
b. Germany.
c. Russia.
d. Brazil.
ANSWER: d. Brazil.
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32. Cross-country distribution of income comparisons show that among the developed countries the United States has
relatively greater
a. equality but less equality than the developing countries.
b. equality but is more equal than the developing countries.
c. inequality but less equality than the developing countries.
d. inequality but is more equal than the developing countries.
ANSWER: d. inequality but is more equal than the developing countries.
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33. The poverty rate includes income,
a. in-kind transfers, and other government assistance aid.
b. in-kind transfers, and housing assistance only.
c. and in-kind transfers only.
d. and nothing else.
ANSWER: d. and nothing else.
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34. In the United States, the poverty rate is a measure of the percentage of people whose income falls below
a. an identified income standard.
b. the median family of four income.
c. the amount of expenditures for a family.
d. an average level of income.
ANSWER: a. an identified income standard.
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35. In 2000, the poverty rate in the United States was approximately
a. 10.9 percent.
b. 11.3 percent.
c. 12.7 percent.
d. 14.1 percent.
ANSWER: b. 11.3 percent.
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36. In 2000, the poverty line for a family of four was (approximately)
a. $14,500.
b. $16,660.
c. $17,600.
d. $20,330.
ANSWER: c. $17,600.
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37. The poverty line reflects an annual income equal to approximately
a. five times the cost of providing an adequate diet.
b. four times the cost of providing an adequate diet.
c. three times the cost of providing an adequate diet.
d. two times the cost of providing an adequate diet.
ANSWER: c. three times the cost of providing an adequate diet.
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38. The poverty line is adjusted each year to reflect changes in the
a. number of people currently on public assistance.
b. level of prices.
c. nutritional content of an “adequate” diet.
d. size of a family.
ANSWER: b. level of prices.
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39. Over the past 50 years, the U.S. poverty rate was at its lowest level in
a. 1960.
b. 1970.
c. 1980.
d. 1990.
ANSWER: b. 1970.
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40. Over the past few years, growth in average income has
a. appreciably decreased the poverty rate.
b. increased poverty.
c. failed to appreciably decrease the poverty rate.
d. increased the poverty rate in some years, and decreased it in other years.
ANSWER: c. failed to appreciably decrease the poverty rate.
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41. Based on U.S. data for 2000, relative to the population as a whole, the poverty rate has been highest for
a. children.
b. Asians.
c. blacks and Hispanics.
d. the elderly.
ANSWER: c. blacks and Hispanics.
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42. Poverty is found to be correlated with
a. race.
b. age.
c. family composition.
d. All of the above are correct.
ANSWER: d. All of the above are correct.
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43. Measuring poverty using an absolute income scale (like the poverty line) is likely to be deceptive because
a. income measures don’t include the value of in-kind transfers.
b. money is more highly valued by the poor than by the rich.
c. the poor are not likely to participate in the labor market.
d. income is not correlated with job satisfaction.
ANSWER: a. income measures don’t include the value of in-kind transfers.
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44. If the value of in-kind transfers are taken into account, the number of families living in poverty in the United States
would
a. increase by about 1 percent.
b. decline by about 1 percent.
c. decline by about 5 percent.
d. decline by about 10 percent.
ANSWER: d. decline by about 10 percent.
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45. All of the following are examples of in-kind transfers, EXCEPT
a. food stamps.
