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Income Inequality and Poverty 5141
62. Explain what is meant by "in-kind transfer" programs. Briefly outline the advantages and
disadvantages of an in-kind transfer program.
63. Assume you are a critic of welfare reforms that impose a time limit on the number of years a
person is eligible for welfare benefits. What is the foundation of your critique?
5142 Income Inequality and Poverty
64. Outline the possible work disincentives created by anti-poverty programs. Is there a way to solve
this problem without causing other forms of inefficiency to arise? Explain your answer.
Problems
1. Who said “The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of
socialism is the equal sharing of miseries”?
2. Approximately what fraction of total income in the US economy comes from labor earnings?
Income Inequality and Poverty 5143
3. If greater equality is the benefit of government intervention into the allocation of society’s
resources, what is the cost?
4. Since 1970, has the distribution of income in the US become more equal, less equal, or remained
unchanged?
5. In 2011, the top 20% of US families had more than times as much income as the bottom 20%.
5144 Income Inequality and Poverty
6. Of the following countries, which has the most equal distribution of income? United States, Brazil,
Mexico, China, Japan, Germany, United Kingdom, Russia
7. The percentage of the population whose family income falls below an absolute level is call the
8. The poverty rate is the percentage of the population whose family income falls below an absolute
level called the .
Income Inequality and Poverty 5145
9. What measure does the federal government use when setting the official poverty line in the US?
Table 20-13
Distribution of Income in Imagination
Number of Families
Income Range
Average Income
23,500
less than $18,000
$15,890
42,410
between $18,000 and $36,000
$27,450
57,330
between $36,000 and $54,000
$46,220
63,490
between $54,000 and $72,000
$65,000
24,770
between $72,000 and $90,000
$80,790
23,500
more than $90,000
$118,750
10. Refer to Table 20-13. If the poverty rate in Imagination is 10%, what is the poverty line?
11. Refer to Table 20-13. If the poverty line in Imagination is $18,000, what is the poverty rate?
5146 Income Inequality and Poverty
12. Refer to Table 20-13. If the poverty rate in Imagination is 25%, in what income range on the
table is the poverty line?
13. Refer to Table 20-13. The Human Development Report computes a measure of inequality by
dividing the income of the richest 10% of the population by the income of the poorest 10%. What
is the value for this measure of inequality in Imagination?
14. Refer to Table 20-13. The Human Development Report computes a measure of inequality by
dividing the income of the richest 10% of the population by the income of the poorest 10%. If the
value for this measure of inequality in the US is 15.9 and the value for India is 8.6, how does
Imagination compare to these two nations?
Income Inequality and Poverty 5147
Table 20-14
Income Inequality in the United States
The values in the table reflect the percentages of pre-tax-and transfer income.
Year
Bottom Fifth
Second Fifth
Middle Fifth
Fourth Fifth
Top Fifth
Top 5%
2010
3.3%
8.5%
14.6%
23.4%
50.2%
21.3%
2005
3.4
8.6
14.6
23.0
50.4
22.2
2000
3.6
8.9
14.8
23.0
49.8
22.1
1995
3.7
9.1
15.2
23.3
48.7
21.0
1990
3.8
9.6
15.9
24.0
46.6
18.5
1985
3.9
9.8
16.2
24.4
45.6
17.6
1980
4.2
10.2
16.8
24.7
44.1
16.5
Source: US Census Bureau
15. Refer to Table 20-14. The trend in income inequality from 1980 to 2010 is .
16. Refer to Table 20-14. If the distribution of income were completely equal, what percentage of
income would the bottom fifth of the population earn?
5148 Income Inequality and Poverty
17. Refer to Table 20-14. In 2010, how many more percentage points of total income did the top
fifth of the population earn compared to if the income distribution were completely equal?
18. Refer to Table 20-14. In 2010, what percentage of total income in the US did the bottom 20%
of families have?
19. Refer to Table 20-14. In percentage terms, how much less income did the bottom 40% of
families have in 2010 than in 1980?
Income Inequality and Poverty 5149
20. With which three demographic variables is poverty correlated?
21. Of the following groups, which group is most likely to live in poverty - children, elderly, married-
couple families, female household with no spouse present?
22. Of the following groups, which group is least likely to live in poverty - whites, blacks, Hispanics,
Asians?
5150 Income Inequality and Poverty
Table 20-15
Income Inequality in 2010 in the United States by Race
The values in the table reflect the percentages of pre-tax-and-transfer income.
Race
Bottom Fifth
Second Fifth
Middle Fifth
Fourth Fifth
Top Fifth
Top 5%
Asians
3.0%
8.9%
15.3%
24.5%
48.3%
19.0%
Blacks
2.7
7.9
14.2
23.6
51.6
21.4
Hispanics
3.5
9.0
14.7
23.3
49.4
20.6
Whites
3.6
8.8
14.9
23.4
49.3
21.0
Source: US Census Bureau
23. Refer to Table 20-15. Which race shows the least equal distribution of income?
24. Refer to Table 20-15. In percentage point terms, how much more did the top 5% of the Asian
population earn than it would have if income were distributed equally?
Income Inequality and Poverty 5151
25. What is the primary problem in comparing income inequality in the US with income inequality in
other countries?
26. Goods and services given to the poor such as food stamps, housing vouchers, and medical
services are called
27. If in-kind transfers were included in income at their market value, what would happen to the
number of families below the poverty line?
