Question 1

Which of the following best describes the difference between income and wealth?

Accepted Answer

Income is a flow variable representing earnings over time, while wealth is a stock variable representing the value of assets at a point in time.

Question 2

In the United States, which quintile of households receives the largest share of total income?

Accepted Answer

The highest quintile

Question 3

If the mean income is greater than the median income, and the median is greater than the mode, what does this indicate about the income distribution?

Accepted Answer

The distribution is positively skewed.

Question 4

Which of the following is true about the Lorenz curve?

Accepted Answer

It graphs the cumulative percentage of households against the cumulative percentage of income.

Question 5

What does a Gini ratio of 0 indicate?

Accepted Answer

Perfect equality

Question 6

Suppose the U.S. Gini ratio increases from 0.40 to 0.47 over a decade. What does this change imply?

Accepted Answer

Income distribution has become more unequal.

Question 7

Which of the following is NOT a major source of economic inequality according to the chapter?

Accepted Answer

Uniform wage rates for all workers

Question 8

Which government policy is most likely to reduce income inequality?

Accepted Answer

A progressive income tax

Question 9

If a country has a Lorenz curve that is very far from the line of equality, what can be said about its Gini coefficient?

Accepted Answer

It is close to one.

Question 10

Which of the following is a potential drawback of income redistribution programs?

Accepted Answer

They may discourage work and create social tensions.

Question 11

A household headed by a young person typically has:

Accepted Answer

Moderate income and is accumulating wealth

Question 12

Which of the following best explains why wealth is more unequally distributed than income?

Accepted Answer

Wealth is accumulated over time and can be transferred between generations.

Question 13

Which of the following is an example of a regressive tax?

Accepted Answer

Sales tax

Question 14

If technological change increases the demand for high-skilled labor, what is the likely effect on wage inequality?

Accepted Answer

Wage inequality will increase.

Question 15

Which of the following policies is designed to guarantee a minimum annual income for families?

Accepted Answer

Negative income tax

Question 16

What is the main tradeoff involved in government income redistribution programs?

Accepted Answer

A tradeoff between equity and efficiency

Question 17

Which of the following is NOT a limitation of measures of income and wealth distribution?

Accepted Answer

They include human capital in wealth data.

Question 18

Which of the following groups is most at risk for poverty in the United States?

Accepted Answer

Households headed by females with no husband present

Question 19

If the global Gini ratio is decreasing, what does this indicate about global income inequality?

Accepted Answer

Global income inequality is decreasing.

Question 20

Which of the following is a real-world example of a government-subsidized service that redistributes income?

Accepted Answer

State college tuition

Economic Inequality: Income, Wealth, and Redistribution

Study Guide - Practice Questions