Chapter 20/Income Inequality and Poverty v 1365Chapter 20Income Inequality and PovertyTRUE/FALSE1.The poverty line is set by the government so that 10 percent of all families fall below that line and are thereby classified as “poor.”ANS:FDIF:1REF:20-1NAT:AnalyticLOC:The study of economics, and definitions of economicsTOP:Poverty lineMSC:Definitional2.The United States has more income inequality than Japan, Germany, and Canada.ANS:TDIF:1REF:20-1NAT:AnalyticLOC:The study of economics, and definitions of economicsTOP:Income inequalityMSC:Definitional3.The United States has more income inequality than Brazil and South Africa.ANS:FDIF:1REF:20-1NAT:AnalyticLOC:The study of economics, and definitions of economicsTOP:Income inequalityMSC:Definitional4.Standard measurements of the degree of income inequality take both money income and in-kind transfers into account.ANS:FDIF:2REF:20-1NAT:AnalyticLOC:The study of economics, and definitions of economicsTOP:In-kind transfers | Income inequalityMSC:Definitional5.John Rawls, who developed the way of thinking called liberalism, argued that government policies should be aimed at maximizing the sum of utility of everyone in society.ANS:FDIF:2REF:20-2NAT:AnalyticLOC:The role of governmentTOP:UtilityMSC:Interpretive6.One existing government program that works much like a negative income tax is the Earned Income Tax Credit.ANS:TDIF:2REF:20-3NAT:AnalyticLOC:The role of governmentTOP:Negative income taxMSC:Interpretive7.One existing government program that works much like a negative income tax is Medicaid.ANS:FDIF:2REF:20-3NAT:AnalyticLOC:The role of governmentTOP:Negative income taxMSC:Interpretive8.The invisible hand of the marketplace acts to allocate resources efficiently, but it does not necessarily ensure that resources are allocated fairly.ANS:TDIF:1REF:20-0NAT:AnalyticLOC:Efficiency and equityTOP:Income inequalityMSC:Applicative9.When the government enacts policies to make the distribution of income more equitable, it distorts incentives, alters behavior, and makes the allocation of resources less efficient.ANS:TDIF:1REF:20-0NAT:AnalyticLOC:The role of governmentTOP:Income inequalityMSC:Applicative10.In the United States in 2005, the bottom fifth of the income distribution had incomes below $19,250.ANS:FDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Income inequalityMSC:Applicative11.The top 5 percent of U.S. annual family income in 2005 was $184,500 or more.ANS:TDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Income inequalityMSC:Applicative12.A U.S. family earning $80,000 would be in the top 20 percent of income distribution in 2005.ANS:FDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Income inequalityMSC:Applicative13.Free trade and economic growth have reduced poverty worldwide.ANS:TDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:PovertyMSC:Applicative14.Although globalization has reduced income inequality, the number of people living in extreme poverty has remained unchanged.ANS:FDIF:2REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:PovertyMSC:Interpretive15.The measured poverty rate may not reflect the true extent of economic deprivation because it does not include some forms of government assistance.ANS:TDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Poverty rateMSC:Applicative16.The poverty line is an absolute standard and is based on the cost of providing an adequate diet.ANS:TDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Poverty lineMSC:Definitional17.The poverty line is based on the percentage of people who cannot afford an adequate diet.ANS:FDIF:2REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Poverty lineMSC:Interpretive18.The poverty rate is a measure of people unable to meet the governments poverty line.ANS:TDIF:2REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Poverty lineMSC:Interpretive19.The elderly represent the largest demographic group in poverty.ANS:FDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:PovertyMSC:Applicative20.About half of black and Hispanic children in female-headed households live in poverty.ANS:TDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:PovertyMSC:Applicative21.The economic life cycle describes how young people usually have higher savings rates than middle-aged people.ANS:FDIF:1REF:20-1NAT:AnalyticLOC:Efficiency and equityTOP:Economic life cycleMSC:Applicative22.Many economists believe that a family bases its spending decisions on its permanent, or average, income rather than on transitory income.ANS:TDIF:1REF:20-1NAT:Analyti