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Chapter 12 Tutorial Income Distribution, Poverty,

and Discrimination

©2000 South-Western College Publishing

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1. In 1997, the wealthiest 5 percent of all U.S. families earned what percentage of total annual money income among families? a. More than 20 percent.b. Less than 10 percent.c. More than 25 percent.d. More than 50 percent.

A.

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Division of the Total Annual Money Income Among Families

% of Families 1980

Lowest 5thSecond-lowest 5th

5.1%

1990 1997

11.517.524.341.615.3

4.6%10.816.623.844.317.4

4.2%9.915.723.047.220.7

Middle 5thSecond-highest 5thHighest 5thHighest 5%

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2. A figure that measures the relationship between the cumulative percentage of money income on the vertical axis and the cumulative percentage of families on the horizontal axis is called the

a. family-income curve.b. Washington curve.c. Lorenz curve.d. Gini curve.

C.

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80%

60%

40%

20%

20% 40% 60% 80%

The Lorenz Curve

% o

f inc

ome

% of families100%

Perfect Equality100%

Inequality

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80%

60%

40%

20%

20% 40% 60% 80%

Exhibit 11Lorenz Curve

% o

f inc

ome

100%

Perfect Equality

100% Y

X

Z

W Cumulative % of families

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3. As shown in Exhibit 11, the perfect equality line is drawn between points a. W and Y along the curve.b. X and Z.c. W and Y along the straight line.d. W and X.

C.

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4. As shown in Exhibit 11, 20 percent of families earned a cumulative share of about _______ percent of income. a. 5.b. 10.c. 30.d. 50.

A.

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5. As shown in Exhibit 11, 40 percent of families earned a cumulative share of about _______ percent of income. a. 5.b. 15.c. 30.d. 50.

B.

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6. Since 1929, the overall income distribution in the United States has become a. much more unequal.b. much less unequal.c. slightly more unequal.d. slightly more equal.

D.

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80%

60%

40%

20%

20% 40% 60% 80%

Lorenz Curve 1929 & 1997

% o

f inc

ome

% of families100%

Perfect Equality

1929

100%

1997

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7. Comparing the family income distributions of the United States, Russia, and Brazil, the conclusion is that income is distributed

a. most equally in Brazil.b. most equally in the United States.c. about the same in all three countries.d. most equally in Russia.

D.

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80%

60%

40%

20%

20% 40% 60% 80%

Lorenz Curve for Nations

% o

f inc

ome

100%

Perfect Equality

U.S.

100%

Russia

Brazil

% of families

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8. In order to establish the poverty line that divides poor and nonpoor families, the government a. multiplies the cost of a minimal diet by 3.b. multiplies the cost of a minimal diet by 5.c. adds 50 percent to cost of a minimal diet.d. adds 100 percent to cost of a minimal diet.

A. Absolute poverty can be defined in dollars to purchase some minimum amount of goods and services essential to meeting a person or family’s basic needs.

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9. The poverty line a. is defined as one-half average family

income.b. includes in-kind transfers.c. includes Medicaid benefits.d. has been attacked for overstating poverty.

D. The poverty line does not include noncash transfers, such as food stamps and Medicaid.

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10. Which of the following is an in-kind transfer? a. Social Security payments.b. Unemployment compensation.c. Food stamps.d. Welfare payments.

C. Social Security payments, unemployment compensation and welfare payments are cash transfer payments included in the poverty line.

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11. Which of the following is a cash assistance (not an in-kind transfer) program? a. Aid to Families with Dependent Children.b. Medicare.c. Medicaid.d. Food stamps.

A. Medicare and Medicaid provide medical care services and food stamps are used for food. AFDC provides cash that can be used to purchase goods and services chosen by recipient.

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12. The negative income tax (NIT) is a plan under which families a. above a level of income pay no tax.b. pay the same tax rate except for the

poor.c. below a level of income pay no tax.d. below a level of income receive a cash

payment.

D.

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$5

0$-5

$-20

$10 $20 $30 $40Family Income

$50

Positive Tax

Negative Tax

$10 Negative Income Tax

Tax

Lia

bilit

y

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13. Which of the following might decrease the supply curve of labor? a. Discrimination against blacks.b. Discrimination against women.c. Difficult licensing requirements.d. All of the above.

D. Discrimination against blacks and women and different licensing requirements reduce the number of workers who are willing to work at various possible wage rates.

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END