1. Which of the following statements about the distribution of U.S. pre-tax family money income in the mid-1990s is correct?

a. The lowest fifth of families received about $18,000 per year or less.
b. The highest fifth of families received about $120,000 per year or more.
c. The middle three fifth of families received roughly between $18,000 and $120,000 per year.
d. All of the above statements are correct.
e. None of the above.

2. Over time, the distribution of U.S. pre-tax family money income has been changing. For example,

a. there was more income equality in 1994 than in 1929.
b. there was less income equality in 1994 than in 1980.
c. both (a) and (b) hold true.
d. the share of the top fifth of income recipients has steadily fallen during the 20^th century.
e. the share of the bottom fifth of income recipients has steadily risen during the 20^th century.

3. Which of the following statements about the U.S. family income distribution is correct?

a. The distribution of income before taxes and transfer payments is called the ex post distribution.
b. The distribution of income after taxes and transfer payments is called the ex ante distribution.
c. The ex ante distribution tends to be more equal than the ex post distribution because transfer payments, such as monetary welfare assistance, Social Security benefits, food stamps, medical assistance, and housing subsidies go largely to the lower income groups, while more taxes are paid by the higher income groups.
d. The ex ante distribution tends to be more equal than the ex post distribution because transfer payments, such as monetary welfare assistance, Social Security benefits, food stamps, medical assistance, and housing subsidies go largely to (corrupt) higher income groups, while more taxes are paid by the (more numerous) lower income groups.
e. None of the above.

4. When studying the personal distribution of income, it seems best to define an individual's income as

a. labor income minus taxes.
b. labor income plus monetary transfer payments minus taxes.
c. labor income plus monetary and in-kind transfers minus taxes.
d. labor income plus asset income plus monetary and in-kind transfers minus taxes.
e. labor income plus asset income plus monetary transfers minus in-kind transfers and minus taxes.

5. A country's income distribution is often presented graphically with the help of a Lorenz curve. Which of the following statements about it is correct?

a. The Lorenz curve relates the dollar income of individuals or families, measured on the vertical axis, to the number of individuals or families, measured on the horizontal axis.
b. The Lorenz curve relates the number of individuals or families, measured on the vertical axis, to the dollar income of individuals or families, measured on the horizontal axis.
c. The Lorenz curve relates the percentage of income received, measured on the vertical axis, to the number of individuals or families, measured on the horizontal axis.
d. The Lorenz curve relates the cumulative percentage of income received, measured on the vertical axis, to the cumulative percentage of individual or family income recipients, measured on the horizontal axis.
e. The Lorenz curve relates the cumulative percentage of income received, measured on the horizontal axis, to the cumulative percentage of individual or family income recipients, measured on the vertical axis.

Table 28.1

Income Class	Percentage of Total Money Income Received by Families in Class
Under $16,003	4.6
$16,003 - $28,000	10.6
$28,001 - $40,800	16.5
$40,801 -$59,550	23.7
$59,551 and over

6. Consider Table 28.1. It contains data about the distribution of money income before taxes among U. S. families in 1989. Each row represents a fifth of all families. Which of the following statements, therefore, is correct?

a. The top fifth of all families received 44.6% of the total.
b. A first point on the Lorenz curve would match 4.6% with $16,003.
c. A second point on the Lorenz curve would match 10.6% with $28,000.
d. A third point on the Lorenz curve would match 16.5% with $40,800.
e. All of the above.

7. Consider Table 28.1. It contains data about the distribution of money income before taxes among U. S. families in 1989. Each row represents a fifth of all families. Which of the following statements, therefore, is correct?

a. A first point on the Lorenz curve would match 4.6% with 20%.
b. A second point on the Lorenz curve would match 15.2% with 40%.
c. A third point on the Lorenz curve would match 31.7% with 60%.
d. other points on the Lorenz curve would match 55.4% with 80% and 100% with 100%.
e. All of the above statements are correct.

8. Which of the following statements about the Lorenz curve graph is correct?

a. The diagonal in the graph is the line of perfect inequality.
b. The diagonal in the graph indicates the position of the Lorenz curve if income were distributed perfectly equally.
c. The diagonal in the graph represents the Gini coefficient.
d. The diagonal in the graph measures the poverty rate and is also known as the poverty line.
e. Both (c) and (d) are correct.

9. Consider Figure 28.1. Which of the following statements about this graph is correct?

a. If there were perfect income equality among the families in question, the Lorenz curve would coincide with the straight line 0B.
b. The straight line 0B is known as the line of perfect equality.
c. If one family had all the income and all the other families had no income, the Lorenz curve would coincide with the kinked line 0AB.
d. The kinked line 0AB is known as the line of perfect inequality.
e. All of these statements are correct.

10. Consider Figure 28.1. Which of the following statements about this graph is correct?

a. The Gini coefficient equals area a.
b. The Gini coefficient equals shaded area b.
c. The Gini coefficient equals shaded area b divided by area a.
d. The Gini coefficient equals shaded area b divided by area b + c.
e. There is insufficient information to determine the size of the Gini coefficient here.

11. Consider Figure 28.1. The meaning of the Gini coefficient can be reviewed by focusing on the ratio of shaded area b to area b + c. This review leads to the following logical conclusion:

a. The greater is the income inequality, the larger is the Gini coefficient.
b. The Gini coefficient must lie between –1 and +1.
c. The Gini coefficient equals –1 when there is perfect income inequality (and one family has all the income).
d. The Gini coefficient equals +1 when there is perfect income equality (and all families have the same income).
e. All of the above.

12. Which of the following is a correct statement about the Gini coefficient?

a. It must lie between - and +.
b. It must lie between –1 and +1.
c. It is negative when there is income inequality and positive when there is income equality.
d. It can never be negative, nor greater than 1.
e. Smaller income inequality leads to a larger Gini coefficient.

13. If the Gini coefficient is lower in country A than in country B, we know

a. that the 20% lowest income families in country A enjoy a larger percentage of their country's income total than do the 20% lowest income families in country B.
b. that the 20% lowest income families in country B enjoy a larger percentage of their country's income total than do the 20% lowest income families in country A.
c. that the 20% highest income families in country A enjoy a smaller percentage of their country's income total than do the 20% highest income families in country B.
d. both (a) and (c).
e. none of the above.

14. The factors that contribute to income inequality among persons or families include all of the following, except

a. innate abilities and attributes.
b. choices between work and leisure.
c. a high Gini coefficient.
d. education and training.
e. choices about risk taking.

15. Which of the following is a correct statement about income inequality among persons or families?

a. It is almost always the result of differential ownership of human capital.
b. It is almost always the result of luck (or lack thereof).
c. It can easily be the result of different choices that people have made and, thus, be "voluntary."
d. It is almost always the result of wage discrimination, of situations wherein individuals of equal ability and productivity (as measured by their contribution to output) are, nevertheless, paid different wages.
e. It is almost always the result of differential ownership of real assets: factories, land, machinery, and so on.

16. According to the marginal productivity standard of a fair income distribution,

a. people should be paid their marginal revenue products.
b. people should pool their marginal revenue products and share them equally.
c. people who are innately more productive than others should share their higher marginal revenue products with those others.
d. people hired by perfectly competitive firms should be paid more than they are being paid.
e. people hired by monopsonies should be paid less than they are being paid.

17. According to the absolute equality standard of a fair income distribution,

a. the marginal utility of income is higher for high-income people than for low-income people.
b. the marginal utility of income is lower for high-income people than for low-income people.
c. redistributing income from the poor to the rich will raise society's total utility.
d. redistributing income from the rich to the poor will lower society's total utility.
e. everyone should get a precisely equal slice of society's total-income pie because of (c) and (d).

18. According to the Rawlsian standard of a fair income distribution,

a. most people are risk takers and would rather have a small chance to be rich than be condemned to be equal with everyone else.
b. most people seek to avoid risk and would, behind a veil of ignorance about their actual position in the income distribution, argue for greater equality lest they end up poor once the veil is removed.
c. everyone should get an identical income, even if this forced equality, by adversely affecting incentives, reduced the size of the income total.
d. incomes should be apportioned in such a way that everyone's total utility is the same.
e. incomes should be apportioned in such a way that everyone's marginal revenue product is the same.

19. Which of the following statements about poverty is correct?

a. The U.S. government defines poverty in relative terms, counting as poor all the people in the lowest tenth of the income distribution.
b. The U.S. government defines poverty in absolute terms, counting as poor all the people whose income lies below a designated dollar poverty income threshold.
c. In order to count the poor accurately, the U.S. government adjusts people's money income for in-kind benefits, unreported and illegal income, and regional differences in the cost of living.
d. In order to count the poor accurately, the U.S. government adjusts raw income data in order to include illegal aliens and some of the homeless.
e. All of the above, except (a).

20. The negative income tax scheme is one of several proposals designed to reduce or eliminate poverty. Which of the following statements about it is correct?

a. The scheme adds negative taxes (i.e., government subsidies) to the current array of positive taxes in an attempt to equalize everyone's after-tax marginal revenue product.
b. The scheme adds negative taxes (i.e., government subsidies) to the current array of positive taxes in an attempt to equalize the marginal utility of everyone's after-tax income.
c. The scheme establishes a guaranteed income level below which people are not allowed to fall, along with a marginal tax rate at which any negative income tax payment is reduced as earned income rises.
d. It establishes an implicit marginal tax rate of 100% in order to reduce government welfare costs.
e. Both (c) and (d).