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Exam 21: Income Inequity and Poverty

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Question 1

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Measures of poverty that fail to account for the value of in-kind transfers:

A) understate the actual poverty rate
B) have little effect on the validity of reported poverty rates
C) are generally more reliable in accounting for annual variation in actual poverty rates
D) overstate the actual poverty rate

E) B) and D)
F) None of the above

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Question 2

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Which of the following reasons suggests that income-based measures of poverty are not ideal when considering the poverty rates of young people:

A) the economic life cycle of an adult suggests that you will supplement your income when young with borrowing
B) young people tend to have lower standards and expectations than older people and retirees
C) young people are not as geographically mobile as older people and therefore then to be stuck in low paying jobs
D) the incomes of young people is more volatile than average and therefore any one year is not a good measure of income

E) C) and D)
F) A) and C)

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Question 3

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In the parable of the leaky bucket, a fundamental problem with government redistribution programs is identified. As long as the government only has 'leaky buckets' at its disposal:

Discuss the life cycle hypothesis of income distribution.

A person's permanent income is:

According to Rawls, principles of justice are the result of:

Out of the following countries, the share of total income going to the poorest fifth of the population is highest in:

Amy currently earns $80 000 a year, while John earns $30 000 a year. Suppose that both of their incomes are subject to diminishing marginal utility. From a utilitarian perspective taking a dollar from Amy and giving it to John will:

In general, which of the following would libertarians conclude is more important than equality?

Economists refer to the regular pattern of income variation over a person's lifetime as the:

The distortionary effect of government redistribution programs means that perfect utility maximising outcomes are unattainable.

Outline the possible work disincentives created by anti-poverty programs. Is there a way to solve this problem without causing other forms of inefficiency to arise? Explain your answer.

Many people have been critical of statistics that are used to characterise income inequality on the grounds that as long as the average income of the poor is increasing, their position relative to the rich should not matter. Evaluate this critique.

The life cycle effect characterises a lifetime income profile in which income:

Table 21-1 Given Table 21-1, which country has a more equally distributed income? Explain your answer.

In Australia, the share of pre-tax income going to the top fifth of families is roughly ______ times the share of income going to the bottom fifth of families in the income distribution:

There are 100 people in society and they have to decide on an income distribution from behind the veil of ignorance. Use the maximin principle to decide which of the following income distributions would be selected by a Rawlsian liberal. Explain your answer. In state A, eight people earn $10m, 92 people earn $5m In state B, 40 people earn $10m and 59 people earn $7m and 1 person earns $1m.

Using demand-supply analysis, show why some economists argue that an effective minimum wage will result in higher unemployment among those groups of workers affected by the minimum wage.

Libertarians conclude that equality of incomes is more important than equality of opportunity.

Suppose the government proposes a negative income tax that calculates taxes owed according to the formula TAXES OWED = (1/4 * INCOME) - $15 000. Suppose a family only earns $20 000. How much tax would they pay?