Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 20, Problem 2MCQ
To determine
Correct statement
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Which of the following statements is correct?
OA. The farther the Lorenz curve is from the line of equality, the more unequal is the distribution of income.
OB. The Lorenz curve for wealth is closer to the line of equality than the Lorenz curve for income.
OC. If the Lorenz curve crosses the line of equality the distribution of income is more unequal at high income levels
than at low income levels.
D. The closer the Lorenz curve is to the line of equality, the more unequal is the distribution of income.
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Which of the following statements about income inequality is true?
a. A low average household income in a society suggests significant income inequality.
b. A society with progressive income taxes will likely have a very unequal after-tax distribution of income.
c. Low taxes on savings tend to lead to a more equitable distribution of after-tax income.
d. Raising taxes on savings and providing subsidies to low-income households will lead to more equal after-tax and transfer incomes.
e. Low tax rates on wealth will lead to less unequal income distributions.
Which of the following is not a true statement about the Lorenz curve?
A.
The Lorenz curve does not consider age differences among wage earners.
B.
The Lorenz curve does not include unreported income obtained from the underground economy.
C.
The Lorenz curve does not consider different sizes of households.
D.
The Lorenz curve includes both money income and income in kind.
Chapter 20 Solutions
Foundations of Economics (8th Edition)
Ch. 20 - Prob. 1SPPACh. 20 - Prob. 2SPPACh. 20 - Prob. 3SPPACh. 20 - Prob. 4SPPACh. 20 - Prob. 5SPPACh. 20 - Prob. 6SPPACh. 20 - Prob. 7SPPACh. 20 - Prob. 8SPPACh. 20 - Prob. 9SPPACh. 20 - Prob. 1IAPA
Ch. 20 - Prob. 2IAPACh. 20 - Prob. 3IAPACh. 20 - Prob. 4IAPACh. 20 - Prob. 5IAPACh. 20 - Prob. 6IAPACh. 20 - Prob. 7IAPACh. 20 - Prob. 8IAPACh. 20 - Prob. 9IAPACh. 20 - Prob. 10IAPACh. 20 - Prob. 11IAPACh. 20 - Prob. 1MCQCh. 20 - Prob. 2MCQCh. 20 - Prob. 3MCQCh. 20 - Prob. 4MCQCh. 20 - Prob. 5MCQCh. 20 - Prob. 6MCQCh. 20 - Prob. 7MCQ
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Similar questions
- If a country had perfect income equality what would the Lorenz curve look like?arrow_forwardWhat is measured on the two axes of a Lorenz curve?arrow_forwardDescribe how a push for economic equality might reduce incentives to work and produce output. Then describe how a push for economic inequality might nut have such effects.arrow_forward
- What are some reasons why a certain degree of inequality of income would be expected in a market economy?arrow_forwardWhich of these is true about the Lorenz curve? a. allows us to rank all countries by the degree of poverty. b. allows us to rank all countries by the degree of inequality. c. is an incomplete measure of inequality. d. is a measure of the wealth of a country.arrow_forwardUsing the Lorenz Curve, answer the following questions. . . Approximately what percentage of the income does the richest 20% of Country B earn? Approximately what percentage of the income does the poorest 20% of Country A earn? If the government of Country B decreased the progressivity of income taxes, would its Lorenz Curve move closer to the 45-degree reference line, closer to Country A's Lorenz Curve, or not move at all?arrow_forward
- What is the Lorenz curve and what does it illustrate? Are incomes distributed equally? What would happen if incomes were equal? Why do you think income distribution is so unequal? Identify and explain three reasons.arrow_forward= The $1.4 billion trick to make us accept income inequality Lotteries take money from the poor and redistribute it unequally. The poor, the uneducated, and minorities play the lottery the most, and it takes a big chunk of their income. Source: The Huffington Post, January 12, 2016 If the news clip is correct, how does a lottery change the distribution of income? Draw two Lorenz curves to illustrate your answer. CID Lotteries result in the distribution of income OA. becoming more unequal OB. becoming more equal OC. remaining unchanged Draw the Lorenz curve in a country that does not have lotteries. Label it Before. Draw the Lorenz curve for the country after the introduction of lotteries. Label it After. >>> To reposition the label click on the cross by the label box and drag it. Cumulative percentage of income 100- 80- 60- 0 20 40 60 80 100 Cumulative percentage of households >>> Draw only the objects specified in the question. 40- 20-arrow_forward1. An economy's Lorenz Curve reveals that an economy's highest income quintile has 65% of the economy's income while the lowest income quintile only has 5% of the economy's income. Solely based on the Lorenz Curve, is this distribution of income fair? Why or why not? 2. To combat income inequality and to generate increased tax revenues to fund expenditures, government officials decide to aggressively increase how progressive income taxes are, so much so that the top income earners are marginally taxed 90% of their income (and while this marginal tax rate may seem oppressive, these top income earners still have more than enough income to satisfy all of their needs and all but the most extravagant of wants - basically, these earners have more than enough money). Argue why this tax policy is a fair approach to fund government expenditures. Why might this tax policy fail to achieve its objectives (tax revenues would actually decline as a result)?arrow_forward
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