The official U.S. poverty measure is based on cash income and does not count the value of noncash aid such as SNAP benefits or Medicaid.
Correct Answer
True
True. The poverty line is compared with a family's cash income, so help received as food benefits, housing aid or health coverage is not counted, which is one criticism of the measure.
Category: Measuring Poverty
Question 2
The poverty rate is the share of total income received by the poorest fifth of households.
Correct Answer
False
False. The poverty rate is the percentage of the population whose income is below the poverty line. The share of total income received by the poorest fifth is the bottom quintile's income share, a measure of inequality.
Category: Measuring Poverty
Question 3
Measured in dollars per person per day, the U.S. poverty line is far higher than the poverty lines the World Bank uses for low-income countries.
Correct Answer
True
True. The World Bank's international poverty lines are a few dollars per person per day, while the U.S. poverty line works out to many times that amount per person.
Category: Measuring Poverty
Question 4
Under a program that reduces benefits by 50 cents for each dollar earned, a recipient earning $10 an hour gains $5 in total income for each extra hour worked.
Correct Answer
True
True. Each hour adds $10 in earnings but cuts the benefit by 0.5 x $10 = $5, so total income rises by $10 - $5 = $5 an hour.
Category: The Poverty Trap
Question 5
Reducing benefits more slowly as earnings rise lowers a program's total cost, because fewer households remain eligible.
Correct Answer
False
False. A slower phase-out raises total cost, because households keep receiving some benefits until their earnings are higher, so more households remain eligible. The tradeoff is a higher cost in exchange for stronger work incentives.
Category: The Poverty Trap
Question 6
Under the official U.S. measure, whether a household counts as poor depends on both its income and the number of people in it.
Correct Answer
True
True. The official poverty thresholds rise with family size, so an income that keeps a single person above the line can leave a family of four below it. The thresholds are also updated each year for inflation so they keep the same buying power.
Category: Measuring Poverty
Question 7
Under TANF, federal funding to each state rises automatically to match whatever the state spends on cash welfare.
Correct Answer
False
False. TANF gives each state a fixed federal grant that it can use for a range of antipoverty purposes. Matching state spending was a feature of the older AFDC program.
Category: The Safety Net
Question 8
The earned income tax credit delivers its help through the income tax system and is available only to people who have earnings from work.
Correct Answer
True
True. The earned income tax credit assists the working poor through the tax system, and because it requires earned income and grows with earnings over a low range, it rewards work.
Category: The Safety Net
Question 9
A household's SNAP benefit grows larger as the household earns more income from work.
Correct Answer
False
False. SNAP benefits shrink as a household's income rises, because the program expects households to spend part of their own income on food. This reduction creates a mild poverty trap.
Category: The Safety Net
Question 10
Medicaid is administered by each state, so its eligibility rules and benefit levels differ from state to state.
Correct Answer
True
True. Medicaid is funded jointly by the federal government and the states, and each state runs its own program, setting eligibility and benefits within federal rules.
Category: The Safety Net
Question 11
TANF benefit levels are set by federal law and are the same in every state.
Correct Answer
False
False. States decide their own TANF benefit levels, so the maximum monthly payment to a similar family differs widely from one state to another.
Category: The Safety Net
Question 12
On a Lorenz curve graph, the line of perfect equality is a straight 45-degree line along which each share of the population receives an equal share of income.
Correct Answer
True
True. On the line of perfect equality, the bottom 20 percent of households receive 20 percent of income, the bottom 40 percent receive 40 percent, and so on.
Category: Measuring Inequality
Question 13
Winner-take-all labor markets narrow the pay gap between the top performers in a field and everyone else in it.
Correct Answer
False
False. In winner-take-all markets a few top performers earn far more than others who are only slightly less skilled, so these markets widen the pay gap.
Category: Causes of Inequality
Question 14
The growth of single-parent households, which tend to have lower incomes, is one change in household composition linked to greater household income inequality.
Correct Answer
True
True. Single-parent households usually have one earner and fall toward the bottom of the income distribution, so their growth has added to measured household income inequality.
Category: Causes of Inequality
Question 15
Since the 1970s, married women in the United States have become less likely to work for pay, reducing the number of two-earner households.
Correct Answer
False
False. The labor force participation of married women rose substantially after 1970, which increased the number of two-earner households.
Category: Causes of Inequality
Question 16
According to the demand and supply model, an increase in the supply of college-educated workers, with demand unchanged, would raise their wages.
Correct Answer
False
False. A rightward shift of supply with demand unchanged lowers the equilibrium wage. Wages of skilled workers rose only because demand for them grew even faster.
Category: Causes of Inequality
Question 17
Very high tax rates on the highest earners are expected to strengthen their incentive to work and start businesses.
Correct Answer
False
False. Very high tax rates reduce the reward for extra work and entrepreneurship, so they are expected to weaken those incentives. This is part of the tradeoff between equality and output.
Category: Reducing Inequality
Question 18
In the United States, wealth is distributed more unequally than income.
Correct Answer
True
True. Wealth builds up over time through saving, investment returns and inheritance, so differences compound, and the distribution of wealth is more unequal than the distribution of income.
Category: Reducing Inequality
Question 19
The U.S. estate tax applies to every inheritance, no matter how small.
Correct Answer
False
False. The estate tax applies only to estates above a very high exemption amount, so it affects only a tiny share of the wealthiest households.
Category: Reducing Inequality
Question 20
Some programs, such as free public education, can increase both economic equality and total output by building workers' skills.
Correct Answer
True
True. Public education redistributes opportunity toward lower-income families while also creating a more skilled and productive workforce, so it can raise equality and output at the same time.
Category: Reducing Inequality