Income inequality and poverty

Income inequality and poverty

Income inequality and poverty are two major social issues that have been prevalent in many countries around the world. Income inequality refers to the unequal distribution of wealth and resources among individuals, households, or groups. On the other hand, poverty refers to being economically disadvantaged, lacking necessities such as food, shelter, clothing, and access to healthcare. These two issues are closely intertwined, as income inequality often leads to poverty, which contributes to the perpetuation of income inequality.

Income inequality has been on the rise in many countries in recent decades. It has been argued that this trend is one of the biggest threats to global economic stability and social cohesion. The widening income gap between the rich and the poor has significant economic, social, and political implications. For example, research has shown that income inequality can lead to reduced economic growth, reduced social mobility, and increased political polarization. Furthermore, income inequality is linked to various health problems, including higher rates of mental health issues, heart disease, and other chronic illnesses.

Poverty, on the other hand, is a complex and multidimensional issue affecting millions of people worldwide. The effects of poverty are far-reaching and can lead to a cycle of disadvantage and marginalization, making it difficult for individuals and communities to escape poverty. Poverty can negatively impact health, education, and overall well-being, reducing the life expectancy and increasing vulnerability to disease and other health problems. In addition, poverty can lead to reduced access to essential services, including clean water and sanitation, which can have further negative impacts on health and overall well-being.

To address these issues, governments and organizations worldwide are implementing a range of policies and programs to reduce income inequality and poverty. For example, many countries have implemented progressive tax systems, in which the rich are taxed at a higher rate than the poor, to help distribute wealth and resources more evenly. Additionally, many governments are investing in education and training programs to help individuals and communities escape poverty and build better lives for themselves and their families. Other initiatives, such as microfinance programs, aim to provide access to financial services and resources for those who may not have access to traditional banking services.

In conclusion, income inequality and poverty are two major social issues that significantly impact individuals, communities, and societies worldwide. Addressing these issues will require a comprehensive and sustained effort from governments, organizations, and individuals. While there is no easy solution, we can build a fairer, more equitable, and prosperous world for all by working together to reduce income inequality and alleviate poverty.

1.Identify the correct statement.

Transfers assisting low-income families increase the opportunity cost of choices that lead to poverty

Implicit marginal tax rates are high for high-income families

Income-linked transfers reduce the marginal tax rates for low-income families

Antipoverty transfers crowd out private charitable efforts

2.The difficulties in eliminating transfer programs that do not benefit current recipients are called:

poverty trap

transitional gains trap

unemployment trap

liquidity trap

3.Which of the following is true of income mobility?

It refers to the income distribution among individuals based on gender at different points in time

It refers to the movement of individuals along the income ladder at different points in time

It refers to the distribution of income throughout the lifespan of an individual at different points in time

It refers to the income distribution among individuals based on their skills at different points in time

4.Which of the following has caused an increase in income inequality in the United States?

A decrease in the earnings differentials between skilled and less-skilled workers

An increase in the proportion of both single-parent and dual-earner families

A decrease in the number of markets characterized by a few people at the top with very high earnings

A sharp increase in the marginal tax rates after the 1970s

5.If substantial income mobility is present,

annual income data are an accurate indicator of the long-term economic status of individuals and families

there is considerable movement of individuals up and down the income ladder when income comparisons among the same individuals or households are made at different points in time

the rich tend to stay rich and the poor tend to stay poor

individuals and families move quite often among the geographic regions of a country but not among income groups

6.Which of the following is a flaw associated with the use of annual income data as an index of inequality?

It does not include transfer payments sent by family members working abroad

It lumps together families of different ages and sizes

It fails to consider the marital status of the household members

It does not take into account the level of education of the different family members

7.Which of the following is likely to reduce income inequality in an economy?

A proportional tax system

A regressive tax system

Implicit marginal taxes

The earned Income Tax Credit system

8.Identify the correct statement.

In the United States, high-income families face high implicit marginal tax rates

In the United States, low-income families face high implicit marginal tax rates

In the United States, implicit marginal tax rates are high for families that are headed by women

In the United States, implicit marginal tax rates are high for whites

9.The poverty threshold income level is based on:

the monthly consumption expenditures of families

the money income of families

the annual household expenditure of families

the annual savings of families

10.Which of the following is true of the U.S. economy?

The poverty rate of African Americans is less than that of whites

The relative income positions of individuals change frequently over time

The poverty rate of married-couple families is greater than that of female-headed families

Relative income positions of individuals have remained constant over time

11.Which of the following is used as a yardstick of economic well-being and the degree of inequality in an economy?

Trade surplus

Money income

Foreign exchange reserves

Transfer payments

12.Identify the correct statement about transfer programs.

They increase the general price level of goods and services in an economy

They are costly in terms of the economy’s overall output level

They reduce the unemployment level in an economy

They increase the work efforts of the recipients

13.In the United States, the adjusted poverty rate was 5.5 percent in 2018, two percentage points lower than the official rate in 1970. This modest progress against poverty during the past half century is startling because:

the tax rates of low-income families have reduced by more than half during this period

real income per person has more than doubled during this period

the government of the United States made cashless transfers to low-income families during this period

the government of the United States provided Earned Income Tax Credit to low-income families during this period

14.Suppose a family earns an additional $10,000 in a year and the implicit marginal taxes paid by the family is 60 percent. The actual amount that is kept by the family in that year is:

$5,000

$4,000

$6,000

$7,000

15.Which of the following is true of the poverty rate in the United States?

The poverty rate of African Americans has been decreasing since 1976

The poverty rate of children has been decreasing since 1976

The poverty rate of individuals is lower than that of families

The poverty rate of whites has been increasing since 1959

16.In the United States the degree of individual income mobility (that is, the degree to which people move from higher to lower or lower to higher income groupings) is

flexible in both direction

rigid in both directions

flexible upward but rigid downward since high income perpetuates itself from generation to generation

flexible downward but rigid upward since most low-income people never rise significantly above the poverty level

17.Which of the following is not a component of economic well-being?

Noncash-transfer benefits

Leisure

The expected stability of future income

Consumer expectations about future prices

18.Which of the following has benefited high-income families more than low-income families in the United States?

Medicaid

Agricultural subsidies

Housing subsidies

Food stamps

19.The Samaritan’s dilemma occurs when:

assisting high-income citizens with tax exemptions reduces the tax revenues of the government

assisting low-income citizens with transfers reduces the opportunity cost of choices that lead to poverty

high-income families are taxed heavily by the government to increase the amount of subsidy given to low-income families

low-income families pay high implicit marginal taxes to avail the benefits of the Social Security program

20.When recipients are required to do something (for example, wait in line, take an exam, or submit a detailed proposal) as a condition to receive the income transfer,

The cost of these actions will erode some of the value of the transfer

The costs of these actions will generally exceed the value of the transfer

The net gain of the transfer recipients will be greater than the value of the transfer

The net gain of the transfer recipients will be equal to the cost they incurred in order to qualify for the transfer

21.High implicit marginal tax rates:

reduce the income inequality between high-income families and low-income families

reduce the incentive of poor families to work hard

increase the level of employment in an economy

decrease the rate of inflation in an economy

22.Which of the following is a characteristic of low-income families?

They are headed by retired people

They are headed by members who work full-time

They are headed by married couples

They are headed by well-educated people

23.Which of the following is true of income share in the United States during 1970–2018?

The share of income earned by the top quintile remained constant, while the share of income earned by the bottom quintile increased

The share of income earned by the top quintile increased, while the share of income earned by the bottom quintile decreased

The share of income earned by the top quintile decreased, while the share of income earned by the bottom quintile remained constant

The share of income earned by the top quintile and the bottom quintile remained constant

24.Income-linked transfers:

reduce the incentives of producers to adopt capital-intensive technologies

reduce the incentives of low-income individuals to develop their skills

increase employment in an economy

decrease inflation in an economy

25.Identify the correct statement.

The annual income data of the United States indicate that the degree of inequality between the whites and the blacks is significantly smaller than the corresponding figure for household expenditure

The household expenditure statistics of the United States indicate that the degree of inequality is significantly smaller than the corresponding figure for annual income

The income mobility data in the United States indicate that the degree of movement is significantly smaller among women in high-income families than men in high-income families

The generational income mobility in the United States is higher in high-income families than in low-income families

26.Means-tested income transfers refer to those:

in-kind transfers that are limited to people or families with an income below the taxable income

transfers that are limited to people or families with an income below a certain cutoff point

in-kind transfers that are limited to people or families who are not a part of Social Security

transfers that are limited to people or families who are not eligible for unemployment compensation

27.Which of the following is true of income mobility in the United States during 1987–2007?

Low-income families easily achieved high-income status

High-income families rarely fell back to a very low level of income

Families that were in the middle-income group easily achieved high income status

Families with a low level of income rarely achieved middle-income status

28.Suppose there are four families, Family A, Family B, Family C, and Family D. Family A is headed by a well-educated person in prime working age, and his spouse is also well-educated and employed. Family B is headed by a less-educated person whose spouse is unemployed. Family C is headed by an individual who retired 10 years ago, and he lives with his wife who is also a retired employee. Family D is headed by a single parent who works at a local restaurant in the evening and goes to community college to complete her graduation. Which of the following families can be considered a high-income family?

Family B

Family A

Family C

Family D

29.In the mid-1960s, it was widely believed that:

an increase in income transfers directed toward the poor would substantially reduce the incidence of poverty

an increase in agricultural subsidies directed toward the poor would substantially reduce the incidence of poverty

an increase in cashless subsidies directed toward the poor would substantially reduce the incidence of poverty

an increase in marginal tax rates directed toward the poor would substantially reduce the incidence of poverty

30.The United States follows a:

progressive taxation system

proportional taxation system

regressive taxation system

pigouvian taxation system

31.Earned Income Tax Credit provides:

supplementary payments to workers with low incomes

subsidies to high-income families

tax exemptions to high-income workers

in-kind transfer benefits to high-income employees

32.Which of the following is true of implicit marginal taxes?

Implicit marginal taxes do not have any effect on workers’ incentive to earn

Large transfers tend to increase the implicit marginal tax rate imposed on the poor

Marginal taxes are not applicable to low-income families

Marginal tax rates do not depend on the money income of an individual

33.Which of the following is true of intergenerational income mobility?

There is a negative correlation between the earnings of parents and children

There is a positive correlation between the earnings of parents and children

It is higher in high-income families than in low-income families

It is lower in low-income families than in high-income families

34.Which of the following is true of a country that shows zero income mobility?

There is considerable movement of individuals up and down the income ladder when income comparisons among the same individuals or families are made on the basis of the gender of the earning members

There is hardly any movement of individuals up and down the income ladder when income comparisons among the same individuals or families are made on the basis of the gender of the earning members

There is considerable movement of individuals up and down the income ladder when income comparisons among the same individuals or families are made at different points in time

There is hardly any movement of individuals up and down the income ladder when income comparisons among the same individuals or families are made at different points in time

35.Over the past two decades, the earnings gap between college graduates and those with only a high school education has:

increased substantially

decreased substantially

remained the same

fluctuated in a random pattern

36.Identify the correct statement about an individual’s pattern of income over his or her lifetime.

The income of an individual is high when he or she is in school, and it becomes constant after retirement

The income of an individual is low when he or she is in school, starts to increase as he or she acquires work experience, and then decreases after retirement

The income of an individual remains the same throughout his or her work life and after retirement

The income of an individual is low when he or she is in school, decreases with an increase in the number of years of work experience, and increases again after retirement

37.Which of the following is true about income inequality?

In recent years, the annual hours worked of persons in the bottom quintile of the income distribution has been approximately twice that of persons in the top quintile

During the last four decades, the share of income earned by the top quintile has fallen, whereas that earned by the bottom group has steadily risen

In a market economy, the distribution of income is determined by the quantity and value of the resources supplied by the various individuals, and nearly half the value of resources owned by the rich was inherited

Taxes and transfers generally increase the income share of the bottom quintile of income recipients, while reducing the share of the top group of earners

38.Which of the following is true of transfer payments?

They lower the implicit marginal taxes of low-income families

They increase the incentive of taxpayers to work and earn

They weaken the incentive of both the taxpayer-donors and the subsidy recipients to work and earn

They reduce the income inequality between the high-income and low-income families

39.In the United States, the poverty rate:

of African Americans was lower than the poverty rate of whites in 2018

of individuals was higher than the poverty rate of families in 2018

of married-couple headed-families was higher than the poverty rate of female-headed families in 2018

of families headed by an elderly person aged 65 years and above was higher than the poverty rate of families headed by females in 2018

40.The poverty threshold income level varies with:

the number of family members

the education of family members

the gender of family members

the ethnicity of family members

41.Which of the following has caused a reduction in the demand for less-skilled and less-educated workers in the United States?

Standardization

Globalization

Decentralization

Nationalization

42.Assume that DeShawn is a single parent who is in poverty. He receives food stamps and Medicaid. For every $100 that he earns, DeShawn loses $35 of his food stamp benefits and $20 in his Medicaid benefits. Also, DeShawn’s income is taxed at a rate of 10 percent. Then, DeShawn’s effective marginal tax rate is

55 percent

45 percent

65 percent

70 percent

43.Identify the correct statement.

In the United States, the poverty rate of families headed by women is higher than the poverty rate of families headed by married couples

In the United States, the poverty rate of African Americans is lower than the poverty rate of whites

In the United States, the poverty rate of children under the age of 18 years has been decreasing since 1980

In the United States, the poverty rate of all individuals has been decreasing since 1976

44.Which of the following statements is true of a market economy?

An increase in the income of one person does not cause a decrease in the income of another person

There is a central distributing agency that redistributes money from high-income families to low-income families

The income of the poor depends on the income of the rich

The government distributes income among various income groups based on their productivity

45.Which of the following is not true of the transfer programs in the United States?

The majority of the subsidies go to large farmers whose income is above the average income

Many of the income transfers are from those with modest incomes to those with incomes well above the average

Programs like Social Security redirect income toward the elderly whose income is above the average level

The implicit marginal taxes paid by low-income families are low

46.Which of the following is true of the poverty rate in the United States?

The poverty rate of African Americans has been increasing since 1976

The poverty rate among children has little changed since 1976

The poverty rate of families headed by married couples has remained constant since 1959

The poverty rate of whites has been increasing since 1959

47.One of the factors that has resulted in an increase in income inequality in the United States is a:

decrease in the earnings differentials between skilled and less-skilled workers

decrease in the number of markets characterized by a few people at the top with very high earnings

decrease in the marginal tax rates since the 1980s

decrease in the proportion of single-parent and dual-earner families

48.Suppose Ryan, a retired employee, has an income that is below the poverty threshold income level. He receives food stamps and housing benefits from the government. For every $100 he earns, his food stamp benefits are reduced by $30 and housing benefits are reduced by $15 because of marginal taxes. The combined implicit marginal tax rate paid by Ryan is:

15 percent

30 percent

45 percent

20 percent

49.Which of the following is a feature of high-income families?

Families headed by retired persons

Dual-parent families

Families headed by youths who are yet to complete high school

Single-parent families

50.Which of the following is a difference between a high-income and low-income family?

High-income families have less educated members than low-income families

High-income families work for a higher percentage of hours than low-income families

High-income families pay lesser amounts of tax than low-income families

High-income families save lesser than low-income families

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Institutions, Policies, and Cross-Country Differences in Income and Growth

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