Economics Study Set 17

Business

Quiz 21 :

Poverty, Inequality, and Discrimination

Quiz 21 :

Poverty, Inequality, and Discrimination

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Discuss the "leaky bucket" analogy (page 456) with your classmates. What maximum amount of income would you personally allow to leak from the bucket in transferring money from the rich to the poor Explain why people differ in their answers to this question.
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One would personally allow leaking 40 percent from the bucket for transferring money to poor people from rich. Rich people should transfer 40 percent of their income for poverty alleviation.
Government should impose higher taxes on higher income group of people. This would help to redistribute income level in the country.
People differ in terms of their opinion regarding income distribution from rich to poor because of their income level. Higher income group of people would prefer lower leakages where as poor people prefer higher leakages.

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Suppose the War on Poverty were starting anew and you were part of a presidential commission assigned the task of defining the poor. Would you choose an absolute or a relative concept of poverty Why What would be your specific definition of poverty
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Relative poverty is elastic concept in which people are not able to maintain the average standard of living in the country. One would consider the relative poverty concept because absolute poverty has almost vanished.
In the United States, almost all people can afford to survive. Therefore, the concept of absolute poverty is used to defining poor in the country. If people are not able to maintain the average standard of living in the country, then they would be considered as poor.

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Since the official poverty line was set at $3,000 in 1964, prices have risen by about a factor of 7. If the poverty line was adjusted only for inflation, what would it be now How does that compare with the actual poverty line
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The current poverty line can be calculated by considering the rise in price level over the years. If the prices have risen by about a factor of 7 and the poverty line in 1964 was set at $3,000, then the current poverty line would be $82,589.79.
The following is a formula for measuring the poverty line by considering the changes in price level.
img img Putting given values in the formula,
img Thus, the current poverty line would be $82,509.79 considering that a price rises by a factor of 7 and the time of 49 years (the difference between 1964 and 2013). The actual poverty line in the Unites states is less than $82, 589.79.

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A number of conservative politicians and economists advocate replacing the progressive income tax with a "flat tax" that would apply the same, low tax rate to all income above a certain exempt amount. One argument against making this change is that the distribution of income has grown much more unequal since the 1970s. Does the evidence support that view Is it a decisive argument against a flat tax How is the trade-off between equality and efficiency involved here
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Define the poverty rate. Does it rise or fall during recessions
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Suppose you were to design a negative income tax system for the United States. Pick a guaranteed income level and a tax rate that seem reasonable to you. What break-even level of income is implied by these choices Construct a version of Table 4 for the plan you have just devised.
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Discuss the concept of the "optimal amount of inequality." What are some of the practical problems in determining how much inequality really is optimal
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