Explaining Income Inequality

1. Poverty is measured based on a percentage of the median income. Income inequality, however, has to do with the _____________.

a. concentration of that income

b. distribution of that income

c. allocation of that income

d. none of the above

2. Poverty can change even when inequality does not move at all. True or False. 

a. True

b. False

3. It is also possible for income inequality to change without affecting the poverty rate. True or False.

a. True

b. False

4. One common way of measuring income inequality is to rank all households by income, from lowest to highest, and then to divide all households into five groups with equal numbers of people, known as _____________.

a. deciles

b. quintiles

c. percentiles

d. quartiles

5. The _________________ shows the cumulative share of the population on the horizontal axis and the cumulative percentage of total income received on the vertical axis.

a. Laffer curve

b. Lorenz curve

c. Gini coefficient

d. Kuznets curve

7. In a Lorenz diagram for income, the line of equality shows

a. the most equitable income distribution.

b. how unequally incomes are distributed.

c. how much redistribution occurs.

d. the income distribution if everyone in the population received the same income.

8. In Figure below, the straight line labeled ab is the

a. Lorenz curve.

b. line of equality.

c. line of poverty.

d. line of distribution.

9. In Figure below, the poorest 60 percent of households have what percent of the nation’s total income.

a. About 37 percent

b. About 60 percent

c. About 63 percent

d. Precisely 100 percent

11.  Which of the following reduces the inequality of income?

a. Assortative mating 

b. A regressive income tax.

c. Large bequests.

d. Government payments to the poor.

12. Which of the following can be the causes of growing inequalities in the U.S.?

a. The Changing Composition of American Households

b. A Shift in the Distribution of Wages

c. Both of these

d. None of these

13. The closer the Lorenz curve for income is to the line of equality,

a. the larger is the nation’s total income.

b. the more equally are incomes distributed.

c. the smaller is the nation’s total income.

d. the larger the fraction of the nation’s income received by the richest families.

14. Which of the following makes the distribution of income more equal?

a. Bequests

b. Progressive income taxes

c. Regressive income taxes

d. The fact that people paid higher wage rates work more hours

15. Income is measured ____ and wealth is measured ____.

a. at a point in time; at a point in time

b. over a period of time; at a point in time

c. at a point in time; over a period of time

d. over a period of time; over a period of time

10. The farther away a Lorenz curve for income is from the line of equality, the

a. more equally wealth is distributed.

b. more equally income is distributed.

c. less equally income is distributed.

d. None of the above.

6. Every Lorenz curve diagram begins with a line sloping up at a 45-degree angle. The points along this line show 

a. perfect equality of the income distribution

b. imperfect equality of the income distribution

c. perfect inequality of the income distribution