Question 1

Scenario 20-3
Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability:
Taxes owed = (1/4 of income) − $16,000
-Refer to Scenario 20-3. This negative income tax would guarantee what minimum level of income to every family?

Accepted Answer

For a family to have a guaranteed minimum level of income, the tax owed would be zero (Taxes owed = 0). Using the formula (1/4 of income) - $16,000 = 0, solving for income gives a guaranteed minimum income of $16,000.

Question 2

Scenario 20-3
Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability:
Taxes owed = (1/4 of income) − $16,000
-Refer to Scenario 20-3. A family earning $46,000 before taxes would have how much after-tax income?

Accepted Answer

The tax liability is calculated as (1/4 of $46,000) - $16,000 = $11,500 - $16,000 = -$4,500. Since the tax liability is negative, the family receives $4,500, making their after-tax income $46,000 + $4,500 = $50,500.

Question 3

Assume that the government proposes a negative income tax that calculates the taxes owed as follows: Taxes Owed = (1/3 × Income) − $10,000. If a family doesn't earn any income, how does the negative income tax affect it?

Accepted Answer

With an income of $0, the taxes owed would be calculated as (1/3 × $0) - $10,000 = -$10,000. This means the family would receive a subsidy of $10,000, as negative taxes translate to a subsidy in a negative income tax system.

Question 4

Supporters of raising the minimum wage argue that minimum-wage laws are

Accepted Answer

Raising the minimum wage directly increases the income of low-wage workers without requiring government expenditure, as businesses are responsible for paying the higher wages.

Question 5

Which of the following statements accurately characterizes the effects of minimum-wage laws?

Accepted Answer

The effects of minimum-wage laws are significantly influenced by the elasticity of labor demand because if the demand for labor is highly elastic, a small increase in the minimum wage can lead to a large decrease in the quantity of labor demanded. Conversely, if the demand is inelastic, the same wage increase might have a much smaller effect on employment levels.

Question 6

Which of the following is not an example of a welfare program?

Accepted Answer

Capital Gains Tax (CGT) is not a welfare program; it is a tax on the profit realized on the sale of a non-inventory asset. The other options (SSI, TANF, and SNAP) are all examples of welfare programs designed to assist those in financial need.

Question 7

Which of the following is not a characteristic of the Earned Income Tax Credit (EITC)?

Accepted Answer

The Earned Income Tax Credit (EITC) is designed to benefit low- to moderate-income working individuals and families, encouraging and rewarding work. It does not specifically target or provide benefits for individuals who are unable to work due to disability; other programs are intended to assist those individuals.

Question 8

Which of the following is not correct?

Accepted Answer

A negative income tax applies to individuals or families whose income falls below a certain level, providing them with supplemental pay from the government. This system does not exclusively apply to working people but can benefit those with no income or very low income, whether they work full-time, part-time, or not at all. Its primary aim is to ensure a minimum income level for all, rather than solely encouraging full-time employment.

Question 9

If the government decided that each family needs a minimum income of $25,000 and promised to make up the difference between whatever a family earned and $25,000, which of the following is correct?

Accepted Answer

This program reduces the incentive to work for any wage up to $25,000 because individuals know they will receive the difference to reach the minimum income regardless of their effort, potentially leading to decreased motivation to work for wages below this threshold.

Question 10

A negative income tax system would

Accepted Answer

A negative income tax system is designed to provide income to low-income households by effectively transferring money from higher-income households to those with lower incomes, thus making the tax system more progressive, not regressive. It maintains and even strengthens the link between tax policy and income distribution, rather than severing it or eliminating progressive tax rates.

Question 11

Which of the following statements is not correct?

Accepted Answer

The statement B is not correct because the decline in welfare benefits since the 1970s has not been directly associated with a decline in the percentage of children living with a single parent. In fact, the percentage of children living in single-parent households has generally increased over time, despite changes in welfare policy.

Question 12

Scenario 20-3
Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability:
Taxes owed = (1/4 of income) − $16,000
-Refer to Scenario 20-3. Below what level of income would families start to receive a subsidy from this negative income tax?

Accepted Answer

Families would start to receive a subsidy when the formula results in a negative tax liability. Setting the tax owed to zero and solving for income: 0 = (1/4 * income) - $16,000, leads to income = $64,000. Below this level, the tax owed would be negative, meaning families receive a subsidy.

Question 13

A disadvantage associated with in-kind transfers to reduce poverty is that they

Accepted Answer

In-kind transfers, such as food stamps or housing vouchers, do not allow recipients the flexibility to spend aid according to their own needs and preferences. Instead, they must use the aid as specified by the program, which may not align with their most pressing needs.

Question 14

Which of the following is not an example of in-kind transfers?

Accepted Answer

The Earned Income Tax Credit is a cash transfer, not an in-kind transfer, which provides goods or services directly.

Quiz 20: Income Inequality and Poverty

Scenario 20-3 Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability: Taxes owed = (1/4 of income) − $16,000 -Refer to Scenario 20-3. This negative income tax would guarantee what minimum level of income to every family?

Scenario 20-3 Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability: Taxes owed = (1/4 of income) − $16,000 -Refer to Scenario 20-3. A family earning $46,000 before taxes would have how much after-tax income?