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Chapter 30
Income, Poverty, and Health Care
30.1 Income
1) The Lorenz curve shows
A) the demand for jobs. B) the supply of jobs.
C) the elasticity of jobs. D) the distribution of income.
2) The graph which represents the distribution of income in an economy is called the
A) Laffer curve. B) Lorenz curve.
C) distribution curve. D) aggregate demand curve.
3) According to the text, today s Lorenz curve is
A) a straight line. B) a vertical line.
C) more bowed than in 1929. D) less bowed than in 1929.
4) According to the text, the lower half of U.S. households earn about what percentage of total
income?
A) 4 percent B) 9 percent C) 15 percent D) 28 percent
5) The Lorenz curve shows what portion of total money income is accounted for by
A) different proportions of a country s households.
B) only the wealthiest citizens.
C) only poor people.
D) taxpaying citizens only.
6) In a Lorenz curve, perfect income equality is represented by
A) a vertical line.
B) a horizontal line.
C) a rectangular hyperbola.
D) a 45 degree line originating from the origin.
7) The more bowed out the Lorenz curve, the
A) less equal the income distribution.
B) more equal the income distribution.
C) greater the overall wealth in the economy.
D) less the overall wealth in the economy.
8) The less bowed the Lorenz Curve, the
A) more equal the income distribution.
B) less equal the income distribution.
C) greater the number of low income people.
D) greater the number of high income people.
9) A straight line Lorenz curve shows
A) an equal distribution of money income.
B) a greater than proportionate share of income going to middle income households.
C) a high incidence of absolute poverty.
D) a highly unequal distribution of income.
10) The more bowed (skewed) the Lorenz curve,
A) the more equal the distribution of income.
B) the greater the number of households in the society.
C) the more unequal the distribution of money income.
D) the greater the total income of the society.
11) The Lorenz curve is a geometric representation of
A) the profile of earnings for a typical family over time.
B) the standard of living experienced by the poor in a country.
C) the difference between pre tax and post tax income.
D) the distribution of income.
12) The more bowed the Lorenz curve, the
A) richer the society.
B) more unequal the distribution of money income.
C) poorer the society.
D) more equal the distribution of income.
13) Suppose 10 percent of the families receive 10 percent of the income, 20 percent of the families
receive 20 percent of the income, and so forth. The Lorenz curve would be
A) a straight line at a 45 degree angle from the origin.
B) a straight line at a 30 degree angle from the origin.
C) the most bowed curve possible.
D) the horizontal axis.
14) The most unequal distribution of income in the above figure exists in
A) country 4. B) country 1. C) country 5. D) country 3.
15) The country reflecting perfect income equality in the above figure is
A) country 4. B) country 1. C) country 5. D) country 3.
16) Which of the following would be considered income in kind?
A) tax refunds B) food stamps
C) yard sales D) reduction in the tax rates
17) One reason some economists are critical of the Lorenz curve is because
A) it reflects income before taxes.
B) it reflects income after taxes.
C) it reflects only the top bracket of taxpayers.
D) it reflects only the poor in the country.
18) Which of the following is NOT a correct criticism of the Lorenz curve?
A) It does not include payments in kind.
B) It does not deal with differences in family size.
C) It ignores the impact of age distribution on income distribution.
D) It refers to money income after taxes.
19) In calculating income for the Lorenz curve, one factor that is omitted, is
A) capital gains income.
B) dividend payments.
C) in kind transfer payments from the government.
D) pure economic rent.
20) Some economists criticize the Lorenz curve because it
A) includes too many things in measuring income, such as food stamps, housing aid, and
other government programs.
B) does not account for the effect of age on a family s income.
C) measures unreported income earned in the underground economy.
D) uses after tax income when pre tax income is more appropriate.
21) Some economists criticize the Lorenz curve because it
A) accounts for differences in the size of households when it should not.
B) does not include the cumulative percentage of households.
C) does not include unreported income earned in the underground economy.
D) represents the inequality of lifetime income when it should just look at a specific time
period.
22) Since World War II, the share of total income going to the bottom 20 percent of U.S. households
has
A) fallen by 20 percent. B) increased by 10 percent.
C) remained constant. D) more than doubled.
23) Compared to a sampling of other developed nations, the U.S. income distribution is more
unequal than many others. What accounts for this?
A) The lowest income families in the United States earn much less than the lowest income
households in other nations.
B) Marginal income tax rates are much higher in the United States than in any other nation.
C) The highest income families in the United States earn much more than the highest income
households in other nations.
D) Other nations manipulate their data to look better.
24) When examining the financial status of households, wealth is
A) synonymous with income.
B) a flow variable whereas income is a stock variable.
C) a stock variable and includes both tangible assets and human capital.
D) not as important as income because wealth does not change over time.
25) The way income is allocated among the population is called the
A) income curve. B) income spread.
C) distribution of income. D) Gini allocation.
26) Which of the following is the best definition of what economists define as total income?
A) Payment for labor services.
B) Payment for labor services and for ownership of other factors of production.
C) Payment for labor services, for use of other factors of production, and gifts and
government transfers.
D) Inheritance.
27) The Lorenz curve
A) shows what portion of the population are living in poverty and what portion are living in
wealth.
B) shows what portion of total money income is accounted for by different proportions of the
nation s households.
C) shows what portion of the population is working as professionals, white and blue collar,
workers and workers at menial tasks.
D)
b
reaks down the income levels of each group in the economy.
28) The more bowed out the Lorenz curve is, the
A) more equal the distribution of income. B) less equal the distribution of income.
C) richer the society. D) poorer the society.
29) A Lorenz curve that represents an unequal income distribution is
A) a straight line starting at the origin. B) a straight line starting at 100%
C) a bowed curved. D) a line that has a kink in the middle of it.
30) A Lorenz curve that is perfectly straight indicates
A) that society is very rich.
B) that a small portion of the population accounts for most of the income.
C) that a large portion of the population accounts for most of the income.
D) complete income equality.
31) If everyone earned the same income, the Lorenz curve would be
A) a rectangular hyperbola.
B) a straight line from the origin at a 45 degree angle.
C) the horizontal axis.
D) very bowed from the diagonal.
32) The above figure displays
A) income inequality curves. B) Gini Coefficients.
C) Lorenz curves. D) Laffer curves.
33) Refer to the above figure. Which curve shows the most unequal distribution of income?
A) A B) B C) C D) D
34) Refer to the above figure. Which curve shows the second most unequal distribution of income?
A) A B) B C) C D) D
35) Refer to the above figure. For which Lorenz curve does the richest 25 percent make 50 percent of
the nation s money income?
A) A B) B C) C D) D
36) Refer to the above figure. For which Lorenz curve does the richest 40 percent make 50 percent of
the nation s money income?
A) A B) B C) C D) D
37) Refer to the above figure. Perfect income equality is shown by
A) the horizontal axis. B) the vertical axis.
C) curve A. D) curve D.
38) Refer to the above figure. Where are the poorest households represented on the graph?
A) The poorest households are to the left along the horizontal axis.
B) The poorest households are to the right along the horizontal axis.
C) The poorest households are all along the horizontal axis.
D) The poorest households are concentrated in the middle.
39) Refer to the above figure. Which of the above panels represents complete income equality?
A) Panel A B) Panel B C) Panel C D) Panel D
40) Refer to the above figure. Which of the above graphs represents an unequal income
distribution?
A) Panel A B) Panel B C) Panel C D) Panel D
41) Changes in the Lorenz curve since 1929 in the United States indicate that
A) the distribution of income today is identical to what it was in 1929.
B) the distribution of income is slightly less equal today than in 1929.
C) the distribution of income is slightly more equal today than in 1929.
D) the distribution of income is much more equal today than it was in 1929.
42) All of the following are criticisms of the Lorenz curve EXCEPT
A) The Lorenz curve does not include in kind transfers.
B) The Lorenz curve does not account for age differences.
C) The Lorenz curve does not account for differences in the sizes of families.
D) The Lorenz curve does not account for differences in education levels.
43) Income in kind is defined as
A) income received in the form of a paycheck.
B) payment for services in the form of cash.
C) tips.
D) income received in the form of goods and services.
44) Income in the form of goods and services is
A) known as money income. B) known as income in kind.
C) not considered income by economists. D) not part of wealth.
45) All of the following are income in kind EXCEPT
A) government provided housing. B) government provided education.
C) tips received by a waitress. D) goods produced in the home.
46) All of the following are income in kind EXCEPT
A) income received from family members. B) services produced in the home.
C) government provided food stamps. D) government provided medical aid.
47) Which of the following is not a true statement about the Lorenz curve?
A) The Lorenz curve includes both money income and income in kind.
B) The Lorenz curve does not include unreported income obtained from the underground
economy.
C) The Lorenz curve does not consider different sizes of households.
D) The Lorenz curve does not consider age differences among wage earners.
48) Compared to the distribution of money income, the distribution of wealth is
A) about the same. B) much more equal.
C) much less equal. D) a little more equal.
49) The return on wealth (both human and nonhuman) is
A) a stock variable.
B) income.
C) measured in the form of bonds.
D) a stock or flow variable depending upon whether the wealth is in the form of bonds or
other financial assets.
50) Which of the following statements is true about income and wealth?
A) Income is a flow measure and wealth is a stock measure.
B) Income is a stock measure and wealth is a flow measure.
C) Both income and wealth are flow measures.
D) Both income and wealth are stock measures.
51) Wealth is measured as
A) only tangible objects.
B) only buildings, machinery, land, cars, stocks and bonds.
C) only nonhuman wealth.
D) nonhuman and human wealth.
52) When comparing the distribution of wealth to the distribution of income, it can be noted that
A) the distributions are about the same.
B) the measurement of income is much less accurate than the measurement of wealth.
C) the measurement of wealth is much less accurate than the measurement of income.
D) wealth does not generate income.
53) All of the following would show a more equal distribution than the distribution of money
income EXCEPT
A) total income. B) after tax income.
C) wealth. D) lifetime earnings.
54) The common measure of wealth used in calculating the distribution of wealth includes
A) workers claims on the Social Security system.
B) workers claims on private pension funds.
C) financial assets.
D) human capital.
55) The richest 10 percent of U.S. houses hold more than two thirds of all wealth. The problem with
this statement is that
A) it does not consider an individual s current income.
B) it does not consider private and public pension plans.
C) it is based entirely on nonhuman wealth.
D) it is based entirely on human wealth.
56) Each of the curves plotted in the graph shown in the above figure is known as a
A) Laffer curve. B) Phillips curve.
C) Keynesian curve. D) Lorenz curve.
57) In the above figure, the curve that represents the most income inequality is
A) a. B)
b
. C) c. D) d.
58) In the above figure, the curve that represents the most income equality is
A) a. B)
b
. C) c. D) d.
59) In the above figure, the curve that represents the second most income equality is
A) a. B)
b
. C) c. D) d.
60) All of the following are criticisms of the Lorenz curve analysis EXCEPT
A) income in kind is not figured in.
B) the inequality gap is not an issue that economists study.
C) different sizes of households are ignored.
D) it does not take into consideration lifetime earnings.
61) Which of the following statements regarding the Lorenz curve is FALSE?
A) A Lorenz curve is a geometric representation of the distribution of income.
B) A Lorenz curve that is perfectly straight represents complete income equality.
C) The less bowed is a Lorenz curve, the less equally income is distributed.
D) The more bowed is a Lorenz curve, the more unequally income is distributed.
62) If a nation s Lorenz curve lies on the 45 degree line of income equality, then
A) more of the nation s income is received by the lowest 20 percent of families than by the
highest 20 percent.
B) income is unequally distributed.
C) more of the nation s income is received by the highest 20 percent of families than by the
lowest percent.
D) the income received by each 20 percent of families is 20 percent of the total income.
63) Income in kind is
A) money income.
B) received in the form of goods and services.
C) income in dollars.
D) used to buy goods and services.
64) Income is considered to be a
A) nontaxable stream of funds. B) flow.
C) stock. D) resource.
65) Wealth is considered to be a
A) nontaxable stream of funds. B) flow.
C) stock. D) resource.
66) The Lorenz curve shows
A) how poverty rates change over time.
B) the percentage of population below the poverty line.
C) the degree of inequality in the income distribution.
D) the ratio of cash income to payments in kind.
67) The most widely used measure of income inequality is
A) the Bureau of Labor Statistics cost of living index.
B) the Laffer curve.
C) the Lorenz curve.
D) the Gemini coefficient.
68) A Lorenz curve measures the ________ on the horizontal axis.
A) cumulative percentage of family income B) cumulative percentage of family wealth
C) cumulative percentage of families D) demand of families on welfare
69) A Lorenz curve measures the ________ on the vertical axis.
A) cumulative percentage of money income
B) cumulative percentage of family wealth
C) cumulative percentage of families
D) demand of families on welfare
70) The Lorenz curve is criticized for all of the following EXCEPT
A) that it excludes transfers in kind income.
B) that it does not account for the size differences of households.
C) that it does not account for age differences of households.
D) that it does not account for the impact of trade on the standard of living.
71) Use the above figure. Refer to the above diagram where curves (a) through (d) are for four
different countries. Income is equally distributed in
A) Country A. B) Country B. C) Country C. D) Country D.
72) Use the above figure. Refer to the above diagram where curves (a) through (d) are for four
different countries. Income is most unequally distributed in
A) Country A. B) Country B. C) Country C. D) Country D.
73) Use the above figure. Refer to the above diagram where curves (a) through (d) are for four
different countries. Income is third most unequally distributed in
A) Country A. B) Country B. C) Country C. D) Country D.
Name(s) Income/Person
Al, Bert $3,000
David, Jamal $2,000
Eve, Eric, Lucy, Cecil $1,500
Fran, George $1,000
74) Use the above table. What percentage of income is received by the richest 20% of the
population?
A) 33.33 percent B) 16.67 percent C) 11.11 percent D) 40.00 percent
75) Use the above table. What percentage of income is received by the poorest 60% of the
population?
A) 27.78 percent B) 33.33 percent C) 44.44 percent D) 55.56 percent
76) Use the above table. What percentage of income is received by the poorest 20% of the
population?
A) 20 percent B) 13.3 percent C) 11.1 percent D) 7.0 percent
77) Use the information in the above table. The top 40 percent of the population earn
A) 66.7 percent of the income. B) 55.5 percent of the income.
C) 50.0 percent of the income. D) 44.4 percent of the income.
78) Use the information in the above table. If Income was evenly distributed, each person would
receive
A) $9,000. B) $2,500. C) $1,800. D) $1,000.
79) The distribution of money income can be represented graphically using
A) supply and demand diagrams. B) a Lorenz curve.
C) a Keynesian curve. D) a Distribution curve.
80) A diagonal straight line on a Lorenz curve represents
A) a perfectly unequal distribution of income (one person has everything).
B) a perfectly equal distribution of income.
C) a high level of inequality in the distribution of income.
D) an oblique distribution of income.
81) Since 1929, the distribution of money income in the United States has
A)
b
ecome slightly more unequal.
B) not dramatically changed.
C)
b
ecome more equal.
D) shifted toward the poorer 20 percent away from the richer 20 percent.
82) In the United States, the distribution of wealth
A) is the same as the distribution of income.
B) is more unequal than the distribution of income.
C) is more equal than the distribution of income.
D) is equal for all families.
83) The wealthiest 10 percent of the population owns about
A) 30 percent of all the wealth in the United States.
B) 50 percent of all the wealth in the United States.
C) 70 percent of all the wealth in the United States.
D) 90 percent of all the wealth in the United States.
84) A geometric representation of the distribution of income is referred to as
A) the labor supply curve. B) the Lorenz curve.
C) the Phillips curve. D) the Keynesian cross.
85) The 45° line on a Lorenz curve represents
A) complete income equality. B) complete income inequality.
C) complete wealth equality. D) complete wealth inequality.
86) Recent income distribution figures in the United States show
A) slightly more inequality. B) less inequality.
C) greater equity. D) less equity.
