The income inequality in the US.

Question

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Answer 1

Question

Chapter 21, Problem 1DQ

To determine

The income inequality in the US.

Expert Solution & Answer

Explanation of Solution

Table -1 shows the distribution of US income by households in 2008:

Table -1

Personal Income Category	Percentage of all households in this category
Under $10,000	7.1
$10,000-$14,999	5.8
$15,000-$24,999	11.8
$25,000-$34,999	10.9
$35,000-$49,999	14.0
$50,000-$99,999	17.9
$100,000 and above	11.9
	20.5
	100.0

As per table -1, the highest 20% have received an income share of 50% in 2008. This is ten times more than the 3.4% than the lowest 20% received. The three quintiles in the middle get less that 50% of the total income before tax. When we combine the bottom three quintiles on top of two quintiles that receive almost twice of them. So, the fact is that the top to 20% are receiving as much as 80% at the bottom.

The government's effect on the income distribution happens through taxes and transfer payments. It has a slightly progressive effect of federal, state, and local taxes on distribution of income as people with a high income have a pay of a higher percentage of their income in taxes when compared to people with a lower income. The main contribution of the government for income equality happens through transfer programs i.e. 80% of the times. The benefit of this contribution goes mainly to people in the lowest quintile where 75% of the income that these people earn is through government transfer payments.

Though these statistics may suggest that the government is contributing heavily to equalize the income, it might be all correct. As the transfer programs provided to people with a lower income decrease the incentive to work so the income earned will be further down. Also, not all these transfer programs got to the poor. For example, in case of subsidies, farming always goes to the farmers that are wealthy. Middle and higher class students get the benefit of education funding by the government than the ones with a lower income.

Economics Concept Introduction

Concept Introduction:

Income inequality: It is the unequal distribution of a household or an individual income across the various participants in an economy.

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Consider a call option on a stock that does not pay dividends. The stock price is $100 per share, and the risk-free interest rate is 10%. The call strike is $100 (at the money). The stock moves randomly with u=2 and d=0.5. 1. Write the system of equations to replicate the option using A shares and B bonds. 2. Solve the system of equations and determine the number of shares and the number of bonds needed to replicate the option. Show your answer with 4 decimal places (x.xxxx); do not round intermediate calculations. This is easy to do in Excel. A = B = 3. Use A shares and B bonds from the prior question to calculate the premium on the option. Again, do not round intermediate calculations and show your answer with 4 decimal places. Call premium =

Answer these questions using replication or the risk neutral probability. Both methods will produce the same answer. Show your work to receive credit. 6. What is the premium of a call with a higher strike. Show your work to receive credit; do not round intermediate calculations. S0 = $100, u=2, d=0.5, r=10%, strike=$150

Answer these questions using replication or the risk neutral probability. Both methods will produce the same answer.

Answer 2

Question

Chapter 21, Problem 1DQ

To determine

The income inequality in the US.

Expert Solution & Answer

Explanation of Solution

Table -1 shows the distribution of US income by households in 2008:

Table -1

Personal Income Category	Percentage of all households in this category
Under $10,000	7.1
$10,000-$14,999	5.8
$15,000-$24,999	11.8
$25,000-$34,999	10.9
$35,000-$49,999	14.0
$50,000-$99,999	17.9
$100,000 and above	11.9
	20.5
	100.0

As per table -1, the highest 20% have received an income share of 50% in 2008. This is ten times more than the 3.4% than the lowest 20% received. The three quintiles in the middle get less that 50% of the total income before tax. When we combine the bottom three quintiles on top of two quintiles that receive almost twice of them. So, the fact is that the top to 20% are receiving as much as 80% at the bottom.

The government's effect on the income distribution happens through taxes and transfer payments. It has a slightly progressive effect of federal, state, and local taxes on distribution of income as people with a high income have a pay of a higher percentage of their income in taxes when compared to people with a lower income. The main contribution of the government for income equality happens through transfer programs i.e. 80% of the times. The benefit of this contribution goes mainly to people in the lowest quintile where 75% of the income that these people earn is through government transfer payments.

Though these statistics may suggest that the government is contributing heavily to equalize the income, it might be all correct. As the transfer programs provided to people with a lower income decrease the incentive to work so the income earned will be further down. Also, not all these transfer programs got to the poor. For example, in case of subsidies, farming always goes to the farmers that are wealthy. Middle and higher class students get the benefit of education funding by the government than the ones with a lower income.

Economics Concept Introduction

Concept Introduction:

Income inequality: It is the unequal distribution of a household or an individual income across the various participants in an economy.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 21, Problem 1DQ

To determine

The income inequality in the US.

Expert Solution & Answer

Explanation of Solution

Table -1 shows the distribution of US income by households in 2008:

Table -1

Personal Income Category	Percentage of all households in this category
Under $10,000	7.1
$10,000-$14,999	5.8
$15,000-$24,999	11.8
$25,000-$34,999	10.9
$35,000-$49,999	14.0
$50,000-$99,999	17.9
$100,000 and above	11.9
	20.5
	100.0

As per table -1, the highest 20% have received an income share of 50% in 2008. This is ten times more than the 3.4% than the lowest 20% received. The three quintiles in the middle get less that 50% of the total income before tax. When we combine the bottom three quintiles on top of two quintiles that receive almost twice of them. So, the fact is that the top to 20% are receiving as much as 80% at the bottom.

The government's effect on the income distribution happens through taxes and transfer payments. It has a slightly progressive effect of federal, state, and local taxes on distribution of income as people with a high income have a pay of a higher percentage of their income in taxes when compared to people with a lower income. The main contribution of the government for income equality happens through transfer programs i.e. 80% of the times. The benefit of this contribution goes mainly to people in the lowest quintile where 75% of the income that these people earn is through government transfer payments.

Though these statistics may suggest that the government is contributing heavily to equalize the income, it might be all correct. As the transfer programs provided to people with a lower income decrease the incentive to work so the income earned will be further down. Also, not all these transfer programs got to the poor. For example, in case of subsidies, farming always goes to the farmers that are wealthy. Middle and higher class students get the benefit of education funding by the government than the ones with a lower income.

Economics Concept Introduction

Concept Introduction:

Income inequality: It is the unequal distribution of a household or an individual income across the various participants in an economy.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 21, Problem 1DQ

To determine

The income inequality in the US.

Expert Solution & Answer

Explanation of Solution

Table -1 shows the distribution of US income by households in 2008:

Table -1

Personal Income Category	Percentage of all households in this category
Under $10,000	7.1
$10,000-$14,999	5.8
$15,000-$24,999	11.8
$25,000-$34,999	10.9
$35,000-$49,999	14.0
$50,000-$99,999	17.9
$100,000 and above	11.9
	20.5
	100.0

As per table -1, the highest 20% have received an income share of 50% in 2008. This is ten times more than the 3.4% than the lowest 20% received. The three quintiles in the middle get less that 50% of the total income before tax. When we combine the bottom three quintiles on top of two quintiles that receive almost twice of them. So, the fact is that the top to 20% are receiving as much as 80% at the bottom.

The government's effect on the income distribution happens through taxes and transfer payments. It has a slightly progressive effect of federal, state, and local taxes on distribution of income as people with a high income have a pay of a higher percentage of their income in taxes when compared to people with a lower income. The main contribution of the government for income equality happens through transfer programs i.e. 80% of the times. The benefit of this contribution goes mainly to people in the lowest quintile where 75% of the income that these people earn is through government transfer payments.

Though these statistics may suggest that the government is contributing heavily to equalize the income, it might be all correct. As the transfer programs provided to people with a lower income decrease the incentive to work so the income earned will be further down. Also, not all these transfer programs got to the poor. For example, in case of subsidies, farming always goes to the farmers that are wealthy. Middle and higher class students get the benefit of education funding by the government than the ones with a lower income.

Economics Concept Introduction

Concept Introduction:

Income inequality: It is the unequal distribution of a household or an individual income across the various participants in an economy.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 21, Problem 1DQ

To determine

The income inequality in the US.

Expert Solution & Answer

Explanation of Solution

Table -1 shows the distribution of US income by households in 2008:

Table -1

Personal Income Category	Percentage of all households in this category
Under $10,000	7.1
$10,000-$14,999	5.8
$15,000-$24,999	11.8
$25,000-$34,999	10.9
$35,000-$49,999	14.0
$50,000-$99,999	17.9
$100,000 and above	11.9
	20.5
	100.0

As per table -1, the highest 20% have received an income share of 50% in 2008. This is ten times more than the 3.4% than the lowest 20% received. The three quintiles in the middle get less that 50% of the total income before tax. When we combine the bottom three quintiles on top of two quintiles that receive almost twice of them. So, the fact is that the top to 20% are receiving as much as 80% at the bottom.

The government's effect on the income distribution happens through taxes and transfer payments. It has a slightly progressive effect of federal, state, and local taxes on distribution of income as people with a high income have a pay of a higher percentage of their income in taxes when compared to people with a lower income. The main contribution of the government for income equality happens through transfer programs i.e. 80% of the times. The benefit of this contribution goes mainly to people in the lowest quintile where 75% of the income that these people earn is through government transfer payments.

Though these statistics may suggest that the government is contributing heavily to equalize the income, it might be all correct. As the transfer programs provided to people with a lower income decrease the incentive to work so the income earned will be further down. Also, not all these transfer programs got to the poor. For example, in case of subsidies, farming always goes to the farmers that are wealthy. Middle and higher class students get the benefit of education funding by the government than the ones with a lower income.

Economics Concept Introduction

Concept Introduction:

Income inequality: It is the unequal distribution of a household or an individual income across the various participants in an economy.

Answer 6

Chapter 21, Problem 1DQ

To determine

The income inequality in the US.

Expert Solution & Answer

Explanation of Solution

Table -1 shows the distribution of US income by households in 2008:

Table -1

Personal Income Category	Percentage of all households in this category
Under $10,000	7.1
$10,000-$14,999	5.8
$15,000-$24,999	11.8
$25,000-$34,999	10.9
$35,000-$49,999	14.0
$50,000-$99,999	17.9
$100,000 and above	11.9
	20.5
	100.0

As per table -1, the highest 20% have received an income share of 50% in 2008. This is ten times more than the 3.4% than the lowest 20% received. The three quintiles in the middle get less that 50% of the total income before tax. When we combine the bottom three quintiles on top of two quintiles that receive almost twice of them. So, the fact is that the top to 20% are receiving as much as 80% at the bottom.

The government's effect on the income distribution happens through taxes and transfer payments. It has a slightly progressive effect of federal, state, and local taxes on distribution of income as people with a high income have a pay of a higher percentage of their income in taxes when compared to people with a lower income. The main contribution of the government for income equality happens through transfer programs i.e. 80% of the times. The benefit of this contribution goes mainly to people in the lowest quintile where 75% of the income that these people earn is through government transfer payments.

Though these statistics may suggest that the government is contributing heavily to equalize the income, it might be all correct. As the transfer programs provided to people with a lower income decrease the incentive to work so the income earned will be further down. Also, not all these transfer programs got to the poor. For example, in case of subsidies, farming always goes to the farmers that are wealthy. Middle and higher class students get the benefit of education funding by the government than the ones with a lower income.

Economics Concept Introduction

Concept Introduction:

Income inequality: It is the unequal distribution of a household or an individual income across the various participants in an economy.

Answer 7

Chapter 21, Problem 1DQ

To determine

The income inequality in the US.

Answer 8

Expert Solution & Answer

Explanation of Solution

Table -1 shows the distribution of US income by households in 2008:

Table -1

Personal Income Category	Percentage of all households in this category
Under $10,000	7.1
$10,000-$14,999	5.8
$15,000-$24,999	11.8
$25,000-$34,999	10.9
$35,000-$49,999	14.0
$50,000-$99,999	17.9
$100,000 and above	11.9
	20.5
	100.0

As per table -1, the highest 20% have received an income share of 50% in 2008. This is ten times more than the 3.4% than the lowest 20% received. The three quintiles in the middle get less that 50% of the total income before tax. When we combine the bottom three quintiles on top of two quintiles that receive almost twice of them. So, the fact is that the top to 20% are receiving as much as 80% at the bottom.

The government's effect on the income distribution happens through taxes and transfer payments. It has a slightly progressive effect of federal, state, and local taxes on distribution of income as people with a high income have a pay of a higher percentage of their income in taxes when compared to people with a lower income. The main contribution of the government for income equality happens through transfer programs i.e. 80% of the times. The benefit of this contribution goes mainly to people in the lowest quintile where 75% of the income that these people earn is through government transfer payments.

Though these statistics may suggest that the government is contributing heavily to equalize the income, it might be all correct. As the transfer programs provided to people with a lower income decrease the incentive to work so the income earned will be further down. Also, not all these transfer programs got to the poor. For example, in case of subsidies, farming always goes to the farmers that are wealthy. Middle and higher class students get the benefit of education funding by the government than the ones with a lower income.