44) Which of the following is NOT considered a determinant of income differences?
A) productivity
B) age
C) discrimination
D) equity or fairness
45) Which of the following does NOT contribute to the marginal productivity of workers?
A) discrimination
B) talent
C) experience
D) education
46) Inheritance accounts for about
A) 5 percent of income inequality.
B) 10 percent of income inequality.
C) 15 percent of income inequality.
D) 30 percent of income inequality.
47) Which of the following would NOT be considered a determinant of marginal productivity?
A) talent
B) gender
C) experience
D) training
48) Determinants of income differences include all of the following EXCEPT
A) age.
B) marginal productivity.
C) moral hazard.
D) discrimination.
49) Typically, the major cost of a college education is
A) tuition.
B) books.
C) foregone income.
D) housing.
50) Determinants of the marginal productivity of labor include all of the following EXCEPT
A) talent.
B) education.
C) experience.
D) location.
51) Going to college to get more knowledge and skills is considered to be an increase in
A) physical capital.
B) consumption.
C) human capital.
D) net exports.
52) All of the following lead to a difference in income EXCEPT
A) sales tax.
B) discrimination.
C) the age-earnings cycle.
D) marginal productivity.
53) On average the productivity of an individual usually peaks when the individual is about
A) 25.
B) 40.
C) 50.
D) 65.
54) If a goal of a nation’s residents is to increase marginal productivity, they should increase
A) expenditures on education.
B) the inheritance tax.
C) exports.
D) the marginal propensity to consume.
55) All of the following contribute to income inequality EXCEPT
A) differences in education and training.
B) differences in job tastes.
C) differences in talent.
D) government transfer programs.
56) The typical age-earnings cycle shows that
A) there is a positive relationship between age and earnings that eventually turns into a negative
relationship.
B) there is a negative relationship between age and earnings that eventually turns into a positive
relationship.
C) there is a constant negative relationship between age and earnings.
D) there is no relationship between age and earnings.
57) The age-earnings cycle is an earnings profile of an individual throughout the person’s
lifetime. The profile shows that
A) earnings usually peak at age 25 and then decline.
B) earnings gradually rise until they peak around age 50.
C) earnings and age have no particular correlation.
D) younger workers have the most productivity.
58) The opportunity cost of going to college for a student receiving a scholarship
A) is the income that she would have earned if she did not go to college.
B) is the risk of dropping out.
C) is the food and living expenses that she has to purchase while in college.
D) is zero because she does not have to pay tuition.
59) The productivity standard for the distribution of income can be thought of as
A) rewarding people according to their ability to produce useful goods.
B) benefiting only the least productive worker.
C) proving that egalitarians are correct.
D) rewarding only the wealthy.
60) One productivity standard for income distribution stated in the text is
A) income distribution should be based on contribution to society’s total output.
B) tax payments are higher for higher income people.
C) poor people pay too much in taxes.
D) the poor should contribute more to society.
61) The contributive standard (merit standard) for distributing income implies that
A) income should be distributed equally.
B) income should be distributed according to need.
C) income should be distributed according to the marginal productivity of workers.
D) a transfer should be contributed to an individual above his or her contribution to net output.
62) The contributive standard of income distribution is met by
A) setting wages according to marginal productivity.
B) having a highly progressive income tax.
C) having the government determine all wages.
D) using local committees to determine the needs of families in the area.
63) The egalitarian principle of income refers to
A) each person being paid differently.
B) each person receiving the same income.
C) each person receiving tax breaks.
D) each person working the same number of hours.
64) “To each exactly the same” refers to
A) the productivity standard.
B) the free market doctrine.
C) the egalitarian principle.
D) the ceteris paribus assumption.
65) A major problem with using the egalitarian principle to distribute income is that
A) it would eliminate the incentives that rewards provide in an economic system.
B) it is difficult to know when an equal distribution of income has been achieved.
C) it would not be fair to the wealthy.
D) there exist no mechanisms to carry out such a scheme.
66) If income were distributed according to the egalitarian principle of “to each exactly the
same,” then one problem would be that
A) there would be little or no incentive for individuals to take risky, hazardous, or unpleasant
jobs.
B) individuals would have an excess desire to invest in their own human capital.
C) too many individuals would want to take risky jobs.
D) productivity levels would probably become too high.
67) The productivity standard says
A) that everyone should have exactly the same income.
B) that the age-earnings cycle should determine income.
C) that people should be compensated on the basis of what they produce.
D) that people should be compensated on the basis of their need.
68) The egalitarian principle refers to
A) “To each according to her need.”
B) “To each exactly the same.”
C) “To each according to her productivity.”
D) “To each according to his ability.”
69) The merit standard refers to
A) “To each according to her need.”
B) “To each exactly the same.”
C) “To each according to her productivity.”
D) “To each according to his ability.”
70) The egalitarian principle says
A) that everyone should have exactly the same income.
B) that the age-earnings cycle should determine income.
C) that people should be compensated on the basis of what they produce.
D) that people should be compensated on the basis of their need.
71) The belief that everyone should have exactly the same amount of income is
A) merit standard.
B) comparable-worth doctrine.
C) egalitarian principle.
D) Lorenz principle.
72) If we were to pay everyone exactly the same income
A) there would be a large amount of economic growth.
B) there would be no incentive to invest in human capital.
C) more people would seek an education.
D) productivity would increase.
73) Which of the following is considered a contributive standard for the distribution of income?
A) rewarding workers according to their productivity
B) rewarding workers according to their needs
C) rewarding workers according to the number of their dependents
D) all of the above
74) If an employer pays employees according to the volume of business revenue they
individually generate, then the employer is applying the
A) productivity standard.
B) merit standard.
C) contributive standard.
D) all of the above.
75) Merit is judged by one’s ability to produce
A) what is considered useful by society.
B) what is considered valuable by society.
C) what is considered beneficial to society.
D) all of the above.
76) We measure a person’s productive contribution in a market system by
A) the marginal factor cost theory of the firm.
B) the profit maximization theory of the firm.
C) the marginal revenue product theory of wage determination.
D) the egalitarian theory of wage determination.
77) Which of the distributive standards does NOT involve a value judgment?
A) productivity standard
B) egalitarian standard
C) merit standard
D) All of the standards involve value judgments.
78) Which of the following is NOT a normative standard for income distribution?
A) the productivity standard
B) the egalitarian principle
C) rewarding people according to merit
D) All of the above are normative standards.
79) If you believe that a worker should be paid on the basis of what he or she produced, you
believe in
A) the egalitarian principle.
B) the productivity standard.
C) the benefits standard.
D) the comparative worth principle.
80) If you believe that all workers should be paid the same, you believe in the
A) egalitarian principle.
B) productivity standard.
C) benefits standard.
D) comparative worth principle.
81) The idea that the Lorenz curve should be along the 45 degree line is consistent with
A) the productivity standard.
B) the egalitarian principle.
C) the conservative principle.
D) none of the above.
82) Which of the following is NOT correct regarding the theories of income distribution?
A) Dealing with how income ought to be distributed is a normative issue.
B) The productivity standard for the distribution of income is stated “to each according to what
they produce.”
C) The egalitarian principle of income distribution is “to each exactly the same.”
D) Dealing with how income should be distributed is a positive economic issue.
83) “To each according to what he or she produces” describes the ________ theory of income
determination.
A) productivity
B) egalitarian
C) equity
D) needs
84) A person’s productive contribution in a capitalist society is measured by determining the
A) market value of the individual’s output.
B) comparable output of other workers in similar jobs.
C) total number of goods produced by the individual.
D) index of occupational values.
85) Why doesn’t the age-earning cycle continuously increase until retirement age?
86) What is the age-earnings cycle? What is the typical age-earnings profile for a U.S. resident?
87) Earnings usually reflect a person’s productivity. What are factors that cause differences in
productivity across people so that earnings differ too?
88) “The typical age-earning cycle provides evidence of economic discrimination by age.” Do
you agree or disagree? Why?
89) Explain the two theories of desired income distribution: the egalitarian principle and the
productivity standard.
90) Compare and contrast the two normative standards to income distribution discussed in the
text: The productivity standard and the egalitarian principle.
30.3 Poverty and Attempts to Eliminate It
1) The lowest percentage of the U.S. population in poverty is found when using which
measurement of household resources?
A) private income only
B) private income plus cash benefits
C) private income with cash and in-kind benefits
D) private income with Social Security payments subtracted
2) The Social Security system is financed by
A) a tax on individual retirement accounts.
B) a payroll tax paid only by employers.
C) a payroll tax paid by both employers and employees.
D) a tax on luxury goods.
3) The Social Security system is a(n)
A) ad valorem system.
B) ability to pay system.
C) progressive tax system.
D) pay-as-you-go system.
4) The government finances Social Security through
A) excise taxes.
B) payroll taxes.
C) the sale of goods and services.
D) state taxes.
5) Which of the following statements is correct?
A) The Social Security program funnels transfers from retired individuals to the youngest
children of low-income families.
B) Social Security is an entitlement which is available to everyone, including those who have not
contributed to the fund during their active work years.
C) Social Security benefits are received by people who had contributed to the fund during their
active work years.
D) As a public transfer payment, Social Security benefit is available only to the poor.
6) The Social Security Fund is designed as
A) a pay-as-you-go system.
B) an investment portfolio that individual contributors can make periodic payments into.
C) an account that allows periodic withdrawals by contributors.
D) an individual account with a federal reserve bank.
7) Social Security is a pure transfer program because
A) it transfers funds from current workers to the poor.
B) the government transfers funds from middle-income workers to welfare recipients.
C) current payroll taxes are used to pay the eligible retirees.
D) the government subsidizes the medical bill of the poor.
8) Since Social Security is a pay-as-you-go program, the funds for the people retiring today
A) come from those of us working today and in the future.
B) come from the Federal Reserve.
C) come from import taxes.
D) come from foreign sales of gold.
9) The original objective of Social Security was
A) to provide retirement fund for all persons.
B) to prevent future depressions.
C) to raise the nation’s saving rate.
D) a proper response to the stock market crash of 1929.
10) The official poverty level is based on
A) total net worth.
B) pretax income, and includes cash subsidies but does not include in-kind subsidies such as
food stamps.
C) after-tax income, and includes both cash and in-kind government subsidies.
D) wages and salaries, plus any unreported amounts of income from the underground economy.
11) The threshold income level originally used to determine official poverty statistics was based
on
A) an income three times the amount of money needed to purchase a nutritionally adequate diet.
B) standards provided by the United Nations based on studies done in poor countries around the
world.
C) the highest income of the lowest one-fifth of families in the country.
D) a per capita income of $1,000 in 1958 prices.
12) Which of the following CANNOT be eliminated in a growing economy such as the U.S.
economy?
A) absolute poverty
B) relative poverty
C) both absolute and relative poverty
D) Neither absolute nor relative poverty can be eliminated.
13) When poverty is defined by an absolute real income level, what will happen to the poverty
rate if income per capita in a country continues to grow?
A) The poverty rate will increase forever.
B) The poverty rate will eventually be zero.
C) The poverty rate will increase and then decrease.
D) The poverty rate will never change.
14) When poverty is defined by an relative real income level, what will happen to the poverty
rate if the distribution of income is NOT perfectly equal?
A) The poverty rate will increase forever.
B) The poverty rate will eventually be zero.
C) The poverty rate will always remain constant.
D) The poverty rate will change, but always exist.
15) Relative poverty
A) has been eliminated in the United States.
B) will always be with us.
C) has never existed in the United States.
D) can be eliminated in the next 20 years.
16) Relative poverty refers to
A) how a family’s income compares to the incomes of those around them.
B) poverty levels at a stated income cutoff.
C) the number of poor in one state relative to another.
D) none of the above.
17) If we include cash benefits and in-kind benefits available to low-income people, the share of
the U.S. population in poverty
A) drops dramatically.
B) increases somewhat.
C) increases dramatically.
D) does not change.
18) If an individual receives in-kind transfers from the government in the form of food stamps,
public housing, and so on, his money income is
A) less than his total income.
B) greater than his total income.
C) the same as his total income.
D) equal to his in-kind income plus his wages.
19) Which of the following statements about the Social Security (OASDI) program is FALSE?
A) Benefits are paid to individuals who would be financially secure in their absence.
B) Benefits are based on need.
C) Benefits are an intergenerational transfer program from those who work to those who don’t
work.
D) When an insured worker dies, benefits continue for widows or other dependents.
20) Which of the following statements is an accurate statement about the Social Security
(OASDI) program?
A) The program is financed by voluntary contributions.
B) Only 50 percent of workers are covered by OASDI.
C) Benefits are based on financial need.
D) The program transfers income from those who work to those who do not work.
21) Which of the following statements about Social Security is FALSE?
A) Social Security is an intergenerational transfer where the benefits paid are only roughly
related to past earnings.
B) Over 90 percent of all employed workers in the United States are covered by Social Security.
C) Benefit payments under Social Security are based on the recipient’s need.
D) Benefit payments under Social Security redistribute income from young to old.
22) Which of the following statements about the Supplemental Security Income (SSI) program is
FALSE?
A) It is designed to establish nationwide minimum incomes for the aged, the blind, and the
disabled.
B) Benefits are based on need.
C) Recipients who receive benefit payments under Social Security are also eligible for SSI.
D) It covers children and individuals with mental disabilities, including drug addicts and
alcoholics.
23) Which of the following statements about the Earned Income Tax Credit Program (EITC)
program is FALSE?
A) On net the EITC discourages work by low- or moderate- income earners more than it rewards
work.
B) It provides rebates of Social Security taxes to low-income workers.
C) Recipients who receive benefit payments under Social Security are also eligible for SSI.
D) It is the largest poverty reduction program in the U.S..
24) All of the following are social insurance programs designed to attack poverty EXCEPT
A) Social Security.
B) temporary assistance to needy families.
C) food stamps.
D) tuition assistance.
25) Which of the following income maintenance programs is designed to establish nationwide
minimum incomes for the aged, the blind, and the disabled?
A) the Old-Age Survivors’ and Disability Insurance (OASDI) program
B) the Supplemental Security Income (SSI) program
C) the Temporary Assistance to Needy Families (TANF) program
D) the food stamps program
26) Under the Social Security program currently in existence
A) benefits are based on need.
B) benefits are determined by whether or not one contributed to the system.
C) benefits are provided to everyone who contributed to the system EXCEPT those under private
retirement programs that provide an annual income in excess of $13,500.
D) benefits are guaranteed to be no lower for future retirees than for current retirees.
27) The funds paid to the government today for Social Security taxes are
A) invested to provide for the future benefits of the taxpayers.
B) saved to ensure sufficient resources in the future to pay the benefits of workers today when
they reach retirement age.
C) used by the government to purchase goods and services that will enhance the future
productivity of business in the country.
D) used to pay the benefits of those who are currently retired.
28) The purpose of the Supplemental Security Income program is
A) to provide a minimum income for all households with children.
B) to provide a guaranteed minimum income for all Americans.
C) to provide a minimum income for the aged, blind, and the disabled.
D) to supplement Social Security for the elderly with medical problems.
29) The purpose of the Temporary Assistance to Needy Families program is
A) to provide rebates of Social Security taxes to low-income workers.
B) to provide cash assistance and supportive services to assist the family, helping them achieve
economic self-sufficiency.
C) to provide a minimum income for the aged, blind, and the disabled.
D) to supplement Social Security for the elderly with medical problems.
30) Current income maintenance programs
A) often provide benefits to people who are working and earning substantially more than the
poverty level.
B) reduce the incentive of recipients to work.
C) have safeguards to ensure that recipients work whenever physically able.
D) fail to make the income distribution more equal.
31) The purpose of the Earned Income Tax Credit Program (EITC) is to
A) provide rebates of Social Security taxes to low-income workers.
B) encourage low- and moderate-income workers to take second jobs to increase their income.
C) provide in-kind services such as food stamps and public housing to those individuals who
have poor credit.
D) give tax credits to low-income individuals who do volunteer work in their communities.