117. Based on U.S. data for 2011, the poverty rate is the highest for which group of people?
a.
children
b.
married couples
c.
female-headed households, no spouse present
d.
the elderly
Table 20–12
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
Second Fifth
Middle Fifth
Fourth Fifth
Top Fifth
Top 5%
Asian
8.9%
15.3%
24.5%
48.3%
19.0%
Black
7.9
14.2
23.6
51.6
21.4
Hispanic
9.0
14.7
23.3
49.4
20.6
White
8.8
14.9
23.4
49.3
21.0
Source: US Census Bureau
118. Refer to Table 20-12. According to the information in the table, which race had the most income inequality in 2010?
a.
Asian
b.
Black
c.
Hispanic
d.
White
119. In comparison to the average poverty rate,
a.
children and the elderly are more likely to be poor.
b.
children and the elderly are less likely to be poor.
c.
children are more likely to be poor, but the elderly are less likely to be poor.
d.
children are less likely to be poor, but the elderly are more likely to be poor.
Figure 20-4
120. Refer to Figure 20–4. The ratio of female-to-male earnings has increased steadily from about 1980 to 2008 because
the earnings of men
a.
increased steadily but by approximately half of the increase in the earnings of women.
b.
decreased while the earnings of women increased.
c.
stayed relatively constant while the earnings of women increased.
d.
decreased by substantially more than the decrease in the earnings of women.
121. Which of the following represents a problem in measuring inequality?
a.
Measurements of income distributions typically include in-kind transfers, which distort the measure of
inequality.
b.
A normal life-cycle pattern causes inequality in the income distribution but may not reflect inequality in living
standards.
c.
Transitory income is a better measure of inequality than permanent income.
d.
Both a and b are correct.
122. Which of the following is not correct?
a.
Poverty is long-term problem for relatively few families.
b.
Measurements of income inequality usually do not include in-kind transfers.
c.
Measurements of income inequality use lifetime incomes rather than annual incomes.
d.
Measurements of income inequality would be more meaningful if they reflected permanent rather than current
income.
123. 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.
decrease by about 1 percent.
c.
decrease by about 5 percent.
d.
decrease by about 10 percent.
124. In-kind transfers
a.
are cash payments given to the poor from the government.
b.
are available to citizens of all income levels, but usually only sought by the poor.
c.
are non-monetary items given to the poor.
d.
include food stamps, but not housing vouchers or medical services.
125. Government vouchers to purchase food, also known as food stamps, are an example of
a.
an in-kind transfer.
b.
life-cycle income.
c.
a negative income tax.
d.
permanent income.
126. In-kind transfers are transfers to the poor
a.
in the form of goods and services rather than cash.
b.
in the form of goods, services, and cash.
c.
from private charitable organizations only.
d.
from the federal government only.
127. The statement that “measures of the distribution of income are based on money income” relates to which problem in
measuring inequality?
a.
in-kind transfers
b.
economic life cycle
c.
transitory versus permanent income
d.
economic mobility
128. When considering a person’s standard of living, data on the income distribution and the poverty rate may provide an
incomplete picture because the poor may
a.
receive in-kind transfers.
b.
be lending to smooth their income over their life cycle.
c.
be saving to smooth their income due to a drop in transitory income.
d.
under-report their income.
129. Suppose the average value of in-kind transfers increases by $2,000 from 2013 to 2014. The poverty rate
a.
is more likely to understate the true level of poverty.
b.
is more likely to overstate the true level of poverty.
c.
will increase by $2,000 divided by the poverty level.
d.
Both b and c are correct.
130. The normal life cycle pattern of income
a.
contributes to more inequality in the distribution of annual income and to more inequality in living standards.
b.
contributes to more inequality in the distribution of annual income, but it does not necessarily contribute to
more inequality in living standards.
c.
contributes to less inequality in the distribution of annual income and to less inequality in living standards.
d.
has no effect on either the distribution of annual income or on living standards.
131. In the United States, a typical worker’s income peaks around age
a.
70.
b.
60.
c.
50.
d.
40.
132. People have their highest saving rates when they are
a.
retired.
b.
middle-aged.
c.
married with young children.
d.
young and single.
133. The regular pattern of income variation over a person’s life is called the
a.
earned income cycle.
b.
substitution effect.
c.
life cycle.
d.
pattern of change.
134. A family’s ability to buy goods and services depends largely on the family’s
a.
economic mobility.
b.
place in the economic life cycle.
c.
transitory income.
d.
permanent income.
135. Susan won $2,000 at the blackjack tables on her birthday. Her winnings are an example of
a.
permanent income.
b.
life-cycle income.
c.
transitory income.
d.
an in-kind transfer.
136. Which of the following statements is correct?
a.
The distribution of annual income accurately reflects the distribution of living standards.
b.
Permanent incomes are more equally distributed than annual incomes.
c.
Transitory changes in income generally have a significant impact on a family’s standard of living.
d.
Annual income is more equally distributed than permanent income.
137. Which of the following is correct?
a.
Incomes tend to be high for young workers.
b.
Incomes tend to rise sharply at retirement.
c.
Incomes tend to peak at around age 50.
d.
Current income is more equally distributed than permanent income.
138. The life cycle effect characterizes a lifetime income profile in which income
a.
tends to follow a seasonal pattern.
b.
rises as a worker gains maturity and experience.
c.
rises and falls in conjunction with the business cycle.
d.
falls during the early years of market activity and peaks at retirement.
139. Because people can borrow when they are young, the life cycle theory would suggest that one’s standard of living
depends on
a.
lifetime income rather than annual income.
b.
aggregate income rather than annual personal income.
c.
annual extended-family income rather than annual personal income.
d.
income averaged across seasons rather than across years.
140. An example of a transitory change in income is the
a.
annual cost of living adjustment to your salary.
b.
increase in income that results from a job promotion linked to your education.
c.
increase in income of California orange growers that results from an orange-killing frost in Florida.
d.
All of the above are correct.
141. Saving and borrowing is indicative of a family that
a.
is most likely to be poor.
b.
has a difficult time balancing its standard of living.
c.
does not adjust its standard of living to reflect transitory changes in income.
d.
is most likely millionaires.
142. Suppose that a family saves and borrows to buffer itself against changes in income. These actions relate to which
problem in measuring inequality?
a.
in-kind transfers
b.
negative income tax
c.
transitory versus permanent income
d.
economic mobility
143. Suppose that young people often borrow and then repay the loans when they are older. These actions relate to which
problem in measuring inequality?
a.
in-kind transfers
b.
the economic life cycle
c.
a negative income tax
d.
economic mobility
144. Suppose that Family A borrows money when its car breaks down and saves money when the wife receives a holiday
bonus from her employer. Suppose that Family B borrows money to buy elaborate birthday presents for the children and
spends the husband’s holiday bonus on a vacation to Florida. Which of the following is correct?
a.
Both Family A’s and Family B’s spending habits suggest that they base their purchasing decisions on
transitory income.
b.
Family A’s spending habits suggest that it bases its purchasing decisions on transitory income rather than
permanent income. Family B’s spending habits suggest that it bases its purchasing decisions on permanent
income rather than transitory income.
c.
Family A’s spending habits suggest that it bases its purchasing decisions on permanent income rather than
transitory income. Family B’s spending habits suggest that it bases its purchasing decisions on transitory
income rather than permanent income.
d.
Both Family A’s and Family B’s spending habits suggest that they base their purchasing decisions on
permanent income.
145. Suppose that Angelo and Sonia each win $500 in a charity raffle. Angelo spends his winnings on a new ipad. Sonia
saves her winnings. Which of the following is correct?
a.
Both Angelo’s and Sonia’s behavior suggest that they base their purchasing decisions on transitory income.
b.
Angelo’s behavior suggests that he bases his purchasing decisions on transitory income rather than permanent
income. Sonia’s behavior suggest that she bases her purchasing decisions on permanent income rather than
transitory income.
c.
Angelo’s behavior suggests that he bases his purchasing decisions on permanent income rather than transitory
income. Sonia’s behavior suggests that she bases her purchasing decisions on transitory income rather than
permanent income.
d.
Both Angelo’s and Sonia’s behavior suggest that they base their purchasing decisions on permanent income.
146. Which of the following statements is not correct?
a.
The percentage of the population that suffers from long-term poverty is far smaller than the percentage of the
population that suffers from short-term poverty because there is a high level of economic mobility in the
United States.
b.
Permanent income is a better measure of a family’s ability to buy the necessities of life than is transitory
income.
c.
The economic life cycle theory explains why gifts of goods and services reduce poverty for the very young
and the very old.
d.
Because people can borrow and save to smooth out changes in income, their standard of living in any one year
depends more on lifetime income than on a particular year’s income.
147. The typical economic life cycle illustrates how people tend to
a.
borrow more when they are younger and save more when they are middle-aged.
b.
earn their peak incomes immediately prior to the typical retirement age of 65.
c.
adjust their consumption based on changes in their transitory income.
d.
All of the above are correct.
148. The Callaway family owns a small bait and tackle shop in a resort town in Wisconsin. An economic recession
reduces the number of tourists for one summer, which reduces the family’s income for that year. For the Callaway family,
their
a.
transitory income for the year of the recession likely exceeds their permanent income.
b.
permanent income likely exceeds their transitory income for the year of the recession.
c.
permanent income will be more affected by the recession than their transitory income.
d.
Both a and c are correct.
149. The Hicks family owns a blueberry farm in Maine. The Ward family owns a blueberry farm in Massachusetts. A
drought in Massachusetts destroys half of the Ward family’s harvest for one year. For the Ward family, their
a.
transitory income for the year of the drought likely exceeds their permanent income.
b.
permanent income likely exceeds their transitory income for the year of the drought.
c.
transitory income likely will be affected but the permanent income of the Hicks family will increase.
d.
permanent income likely will be affected but the permanent income of the Hicks family will not be affected.
150. The Smith family owns an apple orchard in Illinois. The Jones family owns an apple orchard in Wisconsin. A late
frost destroys half of the Smith family’s harvest for one year. For the Jones family, their
a.
transitory income for the year of the frost likely exceeds their permanent income.
b.
permanent income likely exceeds their transitory income for the year of the frost.
c.
permanent income will be more affected by the frost than their transitory income.
d.
Both a and c are correct.
151. For a typical worker, her income will be lower when she is younger, peak around age 50, and decrease drastically
when she retires. This pattern of changes in income for a typical worker is called
a.
the life cycle.
b.
permanent income.
c.
transitory income.
d.
in-kind transfers.
152. A family’s ability to buy goods and services depends largely on its
a.
permanent income, which is its normal, or average, income.
b.
permanent income, which is the lowest annual income the family has received over a 10-year period.
c.
transitory income, which is the measure of income used by the government to analyze the distribution of
income and the poverty rate.
d.
transitory income, which is its money income plus any in-kind transfers it receives.