Question 1

Because of in-kind transfers to the poor and because people's incomes vary from year to year and across their lifetimes, standard measures of income distribution exaggerate the degree of inequality in standards of living.

Accepted Answer

A) True 
 B)False

Question 2

Suppose a negative income tax system is established and the formula to compute a person's annual tax liability is: tax due = (25% of income)  - R150 000.
If a person earns no income then he would receive a negative income tax payment of

Accepted Answer

A)   R37 500.
B)   R150 000.
C)   R187 500.
D)   R600 000.E) A) and B)
F) A) and C)

Question 3

Figure 2 
-Refer to Figure 2. The Gini coefficient is

Accepted Answer

A)   Zero.
B)   One.
C)   less than 0.3 but higher than 0.
D)   over 0.7 but less than 1.E) B) and C)
F) A) and C)

Question 4

Assume that the government proposes a negative income tax that calculates taxes owed by the following formula:
Taxes Owed = (1/3 × Income) - R10 000.
Compute the tax that would be owed given each level of income.
a. R120 000
b. R90 000
c. R60 000
d. R30 000
e. R0

Accepted Answer

a. R30 000
b. R20 000
c. R10 000
d. R0
e. No taxes will be owed. Instead, the family/person would receive a subsidy of R10 000

Question 5

What is meant by a perfectly equal distribution of income? Use a graph to depict such a situation.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> If income were equally distributed acro...

Question 6

It is more efficient for the government to provide in-kind transfers instead of cash payments.

Accepted Answer

A) True 
 B)False  False

Question 7

A key economic argument against complete equalisation of incomes is that

Accepted Answer

A)   it would be unfair.
B)   it would remove incentives for people to work harder and to invest in human capital.
C)   we don't really know what choices people would make if they were behind a veil of ignorance.
D)   people would never vote for such a measure.E) All of the above
F) B) and D)

Question 8

The philosopher John Rawls argued that

Accepted Answer

A)   people would choose income equality if they had to determine an economic distribution system before knowing their place in it.
B)   people would choose income inequality to allow the maximum use of their individual talents.
C)   government has a role to ensure income equality to prevent social unrest.
D)   people would choose income equality because it is morally right.E) All of the above
F) C) and D)

Question 9

A Gini coefficient of 0.7 suggests a country has a very unequal distribution of income.

Accepted Answer

A) True 
 B)False

Question 10

Explain how a "leaky bucket" can be used to illustrate the utilitarian argument that governments should not attempt to completely equalise individual incomes.

Accepted Answer

Utilitarians reject complete equalisatio...

Question 11

John Rawls's maximin criterion does not mean that there should be redistribution so as to equalise everyone's incomes in society because

Accepted Answer

A)   such redistribution would mean that those who worked hard were no better off than those who were lazy and this would be unfair.
B)   such redistribution would not maximise the total income of all members of society.
C)   such redistribution would remove the incentive to work hard, so society's total income would fall, and so the least well off person would be worse off than they could be under a system in which there was some inequality in income.
D)   such redistribution would amount to confiscation of honestly earned income from higher earners and therefore would be unjust.E) A) and B)
F) B) and C)

Question 12

A libertarian would be likely to argue that

Accepted Answer

A)   equality of outcomes in a society does not matter; it's the fairness of the processes that lead to those outcomes that matters.
B)   equality of opportunities is more important than equality of incomes.
C)   the government should not redistribute resources from some individuals to others.
D)   All of the above.E) A) and B)
F) A) and C) D

Question 13

Which political philosophy believes that the government should equalise the incomes of all members of society?

Accepted Answer

A)   Utilitarianism.
B)   Liberalism.
C)   Libertarianism.
D)   None of the above is correct.E) B) and C)
F) A) and B)

Question 14

Raising the welfare of the worst-off person in society is an important goal of which political philosophy?

Accepted Answer

A)   Utilitarianism.
B)   Liberalism.
C)   Libertarianism.
D)   Secularism.E) A) and B)
F) A) and C)

Question 15

Which of the following is most likely to occur when the government enacts policies to make the distribution of income more equal?

Accepted Answer

A)   A more efficient allocation of resources.
B)   A distortion of incentives.
C)   Unchanged behaviour.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 16

Lerato had a big win at the casino on her birthday. The money she won is considered to be

Accepted Answer

A)   permanent income.
B)   life-cycle income.
C)   transitory income.
D)   an in-kind transfer.E) None of the above
F) A) and B)

Question 17

In-kind transfers are:

Accepted Answer

A)   cash payments made to poor people so that they can buy medical treatment.
B)   cash payments made to poor people in excess of what they need.
C)   transfers to the poor given in the form of goods and services rather than cash.
D)   transfers to the poor given by charities rather than the government.E) All of the above
F) A) and B)

Question 18

The political philosophies of utilitarianism and liberalism both suggest that income should be equalised across the population.

Accepted Answer

A) True 
 B)False

Question 19

Figure 1 
-Refer to Figure 1. The red line refers to

Accepted Answer

A)   the Gini coefficient.
B)   the Lorenz curve.
C)   the line of perfect inequality.
D)   the line of perfect equality.E) A) and D)
F) B) and C)

Question 20

Figure 1 
-Refer to Figure 1. The top 20% of the population have what % of the income

Accepted Answer

A)   5%
B)   40%
C)   60%
D)   50%E) B) and C)
F) A) and B)

Exam 18: Income Inequality and Poverty

Because of in-kind transfers to the poor and because people's incomes vary from year to year and across their lifetimes, standard measures of income distribution exaggerate the degree of inequality in standards of living.

Correct AnswerverifiedShow Answer

Suppose a negative income tax system is established and the formula to compute a person's annual tax liability is: tax due = (25% of income) - R150 000. If a person earns no income then he would receive a negative income tax payment of

Correct AnswerverifiedShow Answer

Figure 2 -Refer to Figure 2. The Gini coefficient is

Correct AnswerverifiedShow Answer

Assume that the government proposes a negative income tax that calculates taxes owed by the following formula: Taxes Owed = (1/3 × Income) - R10 000. Compute the tax that would be owed given each level of income. a. R120 000 b. R90 000 c. R60 000 d. R30 000 e. R0

Correct Answerverifieda. R30 000 b. R20 000 c. R10 000 d. R0 e. No taxes will be owed. Instead, the family/person would receive a subsidy of R10 000

What is meant by a perfectly equal distribution of income? Use a graph to depict such a situation.

Correct Answerverified If income were equally distributed acro...View AnswerShow Answer

It is more efficient for the government to provide in-kind transfers instead of cash payments.

Correct AnswerverifiedFalse

A key economic argument against complete equalisation of incomes is that

Correct AnswerverifiedShow Answer

The philosopher John Rawls argued that

Correct AnswerverifiedShow Answer

A Gini coefficient of 0.7 suggests a country has a very unequal distribution of income.

Correct AnswerverifiedShow Answer

Explain how a "leaky bucket" can be used to illustrate the utilitarian argument that governments should not attempt to completely equalise individual incomes.

Correct AnswerverifiedUtilitarians reject complete equalisatio...View AnswerShow Answer

John Rawls's maximin criterion does not mean that there should be redistribution so as to equalise everyone's incomes in society because

Correct AnswerverifiedShow Answer

A libertarian would be likely to argue that

Correct AnswerverifiedD

Which political philosophy believes that the government should equalise the incomes of all members of society?

Correct AnswerverifiedShow Answer

Raising the welfare of the worst-off person in society is an important goal of which political philosophy?

Correct AnswerverifiedShow Answer

Which of the following is most likely to occur when the government enacts policies to make the distribution of income more equal?

Correct AnswerverifiedShow Answer

Lerato had a big win at the casino on her birthday. The money she won is considered to be

Correct AnswerverifiedShow Answer

In-kind transfers are:

Correct AnswerverifiedShow Answer

The political philosophies of utilitarianism and liberalism both suggest that income should be equalised across the population.

Correct AnswerverifiedShow Answer

Figure 1 -Refer to Figure 1. The red line refers to

Correct AnswerverifiedShow Answer

Figure 1 -Refer to Figure 1. The top 20% of the population have what % of the income

Correct AnswerverifiedShow Answer

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a. R30 000 b. R20 000 c. R10 000 d. R0 e. No taxes will be owed. Instead, the family/person would receive a subsidy of R10 000

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If income were equally distributed acro...
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False

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Utilitarians reject complete equalisatio...
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D

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