Economics Final Exam Key Concepts
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What is defined as the minimum income level that covers basic food, shelter, transportation, and medical care?

  • Minimum wage
  • Basic income
  • Living wage
  • Poverty threshold (correct)

Which group has the LOWEST poverty rate in the United States?

  • Children
  • Single mothers
  • Single fathers
  • Married couples (correct)

How common is it for Americans to experience a spell of poverty during their lifetime?

  • Less than 10%
  • Approximately 25%
  • Over 50% (correct)
  • Approximately 35%

What is social insurance primarily focused on?

<p>Compensating for adverse outcomes such as unemployment or disability (C)</p> Signup and view all the answers

Which statement is NOT correct regarding poverty in the United States?

<p>People of color experience poverty less than others. (B)</p> Signup and view all the answers

Government programs that are 'means-tested' require what?

<p>Income-based eligibility (A)</p> Signup and view all the answers

Which program is NOT a means-tested social safety net program in the United States?

<p>Social Security (A)</p> Signup and view all the answers

What percentage of people who escape poverty are likely to return within five years?

<p>Over 50% (C)</p> Signup and view all the answers

What was the approximate poverty line for a household with two people in 2023?

<p>$20,404 (C)</p> Signup and view all the answers

What percentage of the U.S. population lived in poverty in 2023?

<p>approximately 11% (C)</p> Signup and view all the answers

Since World War II, how has the distribution of income in the United States changed?

<p>changed first toward greater equality and then toward greater inequality after the 1970s (A)</p> Signup and view all the answers

Which of the following U.S. programs offers a means-tested, in-kind transfer?

<p>food stamps (A)</p> Signup and view all the answers

Compared to many other developed nations, what is notable about the poverty rate in the United States?

<p>an unusually high poverty rate (A)</p> Signup and view all the answers

Inheriting a house allows you to live in it. What is the result on your wealth and income?

<p>Your wealth increases. (A)</p> Signup and view all the answers

Why were you no longer eligible for certain assistance programs after starting a job?

<p>They are means tested. (C)</p> Signup and view all the answers

What concept is illustrated by a student's reduced effort in class due to a grading system that equalizes grades for all students?

<p>efficiency and equality (B)</p> Signup and view all the answers

Which aspect of fairness is emphasized when considering Frances's successful career compared to Francis's less successful one?

<p>opportunities (C)</p> Signup and view all the answers

How would you explain the difference between Medicaid and Medicare?

<p>A means-tested program; available to anyone over 65 years old. (A)</p> Signup and view all the answers

In the parable of the vineyard workers, what type of fairness do you imply by believing the vineyard owner was fair in paying all workers the same?

<p>outcomes (C)</p> Signup and view all the answers

What effect does understanding permanent income have on Myrda's finances?

<p>Her consumption is less volatile than her income. (C)</p> Signup and view all the answers

Why do you believe the Fiscal Challenge competition will be fair?

<p>process (C)</p> Signup and view all the answers

Which statement is NOT true about permanent income as a measure of living standards?

<p>Permanent income is less reflective of well-being than annual income. (A)</p> Signup and view all the answers

What is a common misconception about Social Security according to your friend's rationale?

<p>Earning less now will result in higher retirement benefits. (D)</p> Signup and view all the answers

What role does disability insurance play in your cousin Pat's situation after an accident?

<p>social insurance program (C)</p> Signup and view all the answers

How can the fairness of the outcomes in the vineyard workers' parable be perceived?

<p>equity in payment for different hours worked (D)</p> Signup and view all the answers

What happens to Mryda's consumption usually when faced with short-term unemployment?

<p>It is influenced by her permanent income knowledge. (A)</p> Signup and view all the answers

What would be a logical result of inheriting an asset like a house?

<p>Wealth increases, but income remains unchanged. (B)</p> Signup and view all the answers

What underlying principle can be derived from the Fiscal Challenge's rule of impartiality?

<p>ensuring equal treatment (C)</p> Signup and view all the answers

What might be a misconception regarding the relationship between higher taxes and Pat's ability to manage after the accident?

<p>insurance reduces reliance on taxes (D)</p> Signup and view all the answers

What is meant by permanent income?

<p>The average income over a lifetime. (C)</p> Signup and view all the answers

In comparison to other developed countries, how do the chances of falling into poverty in the United States rank?

<p>Higher. (A)</p> Signup and view all the answers

As a struggling artist moving to a Caribbean island changes your income status from below the poverty line to the fourth income quintile, this reflects a change in which type of poverty?

<p>Relative poverty. (C)</p> Signup and view all the answers

What division of population is typically used to analyze income inequality, and what are these groups referred to as?

<p>Five groups; quintiles. (D)</p> Signup and view all the answers

What percentage of total income is earned by the top quintile in the provided income distribution?

<p>68.8% (D)</p> Signup and view all the answers

From 1970 through 2014, how did the share of income earned by the top quintile change compared to the share earned by the bottom quintile?

<p>Rose; fell. (B)</p> Signup and view all the answers

If a household earns $70,000, what percentage of total income does this household represent in the population?

<p>43.8%. (C)</p> Signup and view all the answers

Why is average lifetime income considered a better predictor of a person's current living standard than current income?

<p>People can save and borrow to average out consumption over their lifetimes. (B), Wealth from assets allows increasing consumption as a person gets older. (D)</p> Signup and view all the answers

How do people's beliefs about wealth distribution in the United States differ from the actual distribution?

<p>People believe the distribution of wealth is more unequal than it actually is. (C), People believe the distribution of wealth is more equal than it actually is. (D)</p> Signup and view all the answers

How tend to differ consumer spending relative to income?

<p>Less than income differences. (A), In proportion to income differences. (D)</p> Signup and view all the answers

What trend has the U.S. poverty rate exhibited over the past 40 years?

<p>The rate rose for 20 years and then fell for the next 20 years. (B)</p> Signup and view all the answers

What defines the poverty line?

<p>An income level set by the government to define poverty. (B)</p> Signup and view all the answers

What does the poverty rate represent?

<p>The percentage of the population below the poverty line. (C)</p> Signup and view all the answers

What is the basis for the income level that defines the poverty line in the U.S.?

<p>The value of a low-cost food plan multiplied by three, updated annually for inflation. (B)</p> Signup and view all the answers

Which standard measures relative poverty?

<p>Income compared to the average income of the community. (D)</p> Signup and view all the answers

Flashcards

Wealth vs. Income

Wealth refers to the total value of assets owned, while income represents earnings from work, investments, or other sources. Inheriting a house increases wealth but doesn't directly affect income.

Means-tested Programs

Means-tested programs determine eligibility based on income and assets. Examples include SNAP (food stamps) and housing assistance, where benefits decrease or disappear as income rises.

Social Security and Earnings

Social Security benefits are partially based on your lifetime earnings. A higher income during your working years leads to larger Social Security payments in retirement.

Medicaid vs. Medicare

Medicaid is a means-tested health insurance program for low-income individuals, whereas Medicare is a federal health insurance program primarily available to those over 65.

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Permanent Income vs. Annual Income

Permanent income is a long-term average of income, representing a more stable measure of earning power. In contrast, annual income fluctuates based on short-term factors.

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Utility and Income

Utility refers to satisfaction or happiness. Higher income generally leads to higher utility, as it allows for greater consumption and freedom of choice.

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Consumption and Permanent Income

Individuals tend to adjust their consumption levels based on their permanent income rather than their short-term annual income fluctuations.

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Living Standards

Permanent income is a better indicator of living standards than annual income because it captures a person's long-term earning potential and ability to sustain a certain level of consumption.

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Poverty Line

The minimum income level considered sufficient to meet basic needs in a particular country. It's used to define who is considered poor.

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US Poverty Rate

The percentage of the US population living below the poverty line in a given year.

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Income Inequality

The unequal distribution of income across different groups in a society. It measures the gap between the rich and the poor.

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Social Insurance Programs

Government programs that provide benefits to people who have contributed to the system, regardless of their income level. They are funded through payroll taxes.

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Permanent Income

Your average lifetime income, incorporating both good and bad years.

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Poverty in the US

Compared to other developed countries, the chances of falling into poverty are higher in the United States.

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Relative vs. Absolute Poverty

Relative poverty considers your income level in relation to others in your society, while absolute poverty focuses on a basic standard of living.

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Income Quintile

When studying income distribution, a population is divided into five groups, each representing 20% of the total income.

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Top Quintile Income Share

The percentage of total income earned by the top 20% of earners in a country.

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Bottom Quintile Income Share

The percentage of total income earned by the lowest 20% of earners in a country.

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Income Inequality Trend

From 1970 to 2014, the share of income earned by the top quintile in the US increased while the share earned by the bottom quintile decreased.

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Income Distribution Measurement

Data on income distribution is presented by dividing the population into quintiles, revealing how income is spread across different income levels.

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Lifetime Income vs. Current Income

Economists believe that a person's average lifetime income is a better indicator of their living standard than their current income because people can save and borrow to smooth out their consumption over their lives.

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Perceived vs. Actual Wealth Distribution

People tend to underestimate the inequality of wealth distribution in the United States. They believe it is more equal than it actually is.

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Consumer Spending and Income Differences

Differences in consumer spending tend to vary more than differences in income. This means that individuals with higher incomes tend to spend proportionally more than those with lower incomes.

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U.S. Poverty Rate Trend

The poverty rate in the United States has been relatively stable over the past 40 years, with some fluctuations.

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Poverty Line Definition

The poverty line is an income level set by the government to define poverty. It is based on the cost of a basic food plan, adjusted for family size and inflation.

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Poverty Line Calculation

The U.S. government calculates the poverty line using a low-cost food plan multiplied by three, updated annually for inflation.

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Relative Poverty

Relative poverty measures poverty based on a percentage of the median income in a society. It focuses on income disparities.

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What is poverty?

Poverty is a state where an individual or household lacks the financial resources to meet their basic needs, such as food, shelter, transportation, and healthcare.

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Long-Term Poverty

A situation where individuals or households remain in poverty for extended periods, typically lasting more than five years.

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Recurrent Poverty

The tendency for people to experience multiple episodes of poverty throughout their lives, often entering and exiting poverty multiple times.

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Who is most likely to experience poverty?

Children, single mothers, and people of color are disproportionately more likely to experience poverty compared to other demographics in the United States.

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What group has the lowest poverty rate?

Married couples have the lowest poverty rate in the United States, followed by single fathers, while children and single mothers have significantly higher poverty rates.

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Tradeoff between Equality & Efficiency

When a policy aims to make things equal for everyone, it might lead to less efficiency. In other words, making sure everyone has the same grade could mean that people who put in more effort don't get recognized.

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Fairness of Process

Fairness based on equal opportunities and impartial rules in a system. Focuses on making the process itself just, regardless of the final result.

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Fairness of Outcomes

Focuses on whether the final results of a situation are equitable. This considers if everyone ended up with a fair share, regardless of the process.

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Fairness of Opportunities

Fairness based on providing everyone with the same chances and resources to succeed, regardless of their background or personal circumstances.

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Fairness of Redistribution

Fairness assessed by how resources or wealth are distributed within society, aiming to reduce inequalities and provide a more equitable distribution of wealth.

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Fiscal Policy

The use of government spending and taxes to influence the economy. It aims to regulate economic activity and achieve specific goals like growth or stability.

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Study Notes

Practice Final Exam - Key Concepts

  • Grading System Tradeoff: The professor's policy of averaging class points for grades creates a trade-off between efficiency (everyone gets the same grade) and equality (effort is not rewarded in a comparative way).

  • Poverty Types: The exam distinguishes between absolute and relative poverty. Absolute poverty defines a minimum level of income, while relative poverty compares income to the broader population's standard of living.

  • Middle-Class Twins: The exam details two twins, one succeeding, and another failing to reach the top quintile after having similar opportunities.

  • Equity vs Fairness: The question of fairness in the vineyard workers parable (Matthew 20:1-16) focuses on outcomes, opportunities, process, and redistribution in employment.

  • Fiscal Challenge: The competition format of the economics club's Fiscal Challenge is designed to prioritize process fairness to ensure opportunities, outcomes, and process are fairly measured.

  • Social Insurance Program: The accident of your cousin, Pat illustrates a social insurance program, through disability insurance, mitigating the impact of the loss of income or job due to inability to work.

  • Wealth vs Income: The inheritance of a beach house increases wealth, while income is generated by rental.

  • Social Safety Net: The Supplemental Nutrition Assistance Program (SNAP)and housing assistance are means-tested. This means eligibility depends on income requirements.

  • Retirement Benefits: The example illustrates that Social Security is designed to ensure a decent standard of living in retirement, often linked to prior earned income.

  • Difference Between Medicaid and Medicare: Medicaid is a means-tested, government funded healthcare program providing coverage for low-income individuals. Medicare, another government funded program, offers health insurance to older adults.

  • Permanent Income: A concept mentioned as an indicator of financial security, rather than fluctuating annual income.

  • Poverty and Distribution: Questions regarding the poverty line and percentages of populations living in poverty are relevant to understand relative and absolute measures in the United States.

  • Income Inequality: Discussion points highlight that income disparities have changed over time based on the way incomes are distributed amongst different groups of individuals in the U.S.

  • Means-Tested vs Non-means-Tested: Distinctions made between programs requiring income verification (means-tested) and programs available to all citizens (non-means-tested) for certain benefits.

  • Poverty, Social Inequality, and Distribution: The questions discuss various aspects of poverty including poverty rates, the means-tested programs and how to measure the level of poverty.

  • Economic Policies Several questions pertain to different types of economic policies.

Data Interpretation (Specific to Question 16 & 17)

  • Top Quintile Income: The top quintile earns 43.8% of total income in the example dataset.

  • Bottom Quintile Income: In the example, the bottom quintile earns 1.3% of total income.

Additional Concepts

  • Lifetime Income vs. Current Income: Lifetime income is argued to be a more practical metric for measuring overall financial well-being compared to annual income.

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ACE 100: Practice Final Exam - Fall 2024 PDF

Description

This quiz covers key concepts from the final economics exam, exploring topics such as grading policies, types of poverty, equity versus fairness, and fiscal challenges in competitions. Participants will analyze trade-offs in grading systems and understand different poverty definitions while reflecting on fairness in economic opportunities.

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