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1、CHAPTER 7 - Income Redistribution: Conceptual IssuesMultiple Choice Questions1.An in-kind transfer is aa)transfer made by people to be kind to others.b)transfer of wealth.c)transfer of goods and services instead of cash.d)system of clearing checks by local banks.2.For the additive social welfare fun
2、ction to yield results, we must assumea)individuals have identical utility functions.b)individuals utility functions have diminishing marginal utility of income.c)the total amount of income available is fixed.d)all of the above.e)none of the above.3.The poverty rate in the United States has _ over t
3、he last 30 years.a)remained the sameb)increasedc)decreasedd)not been accurately measurede)done none of the above4.Generally, official poverty measures ignorea)the impact of taxes.b)the value of in-kind transfers.c)the value of medical expenses that are paid by the government.d)all of the above.5.Tak
4、ing into account the utility of all persons in society is referred to asa)a utilitarian social welfare function.b)equalizing social welfare function.c)an in-kind transfer.d)a Pareto equilibrium.e)all of the above.6.A notion that supports the idea that some items should be distributed equally to all
5、is known asa)Pareto efficiency.b)the Hoover Principle.c)poverty gap closing.d)commodity egalitarianism.e)none of the above.7.The middle class in the United States has _ since the late 1960s.a)stayed the sameb)decreasedc)increased a great deal but then declinedd)increased slightly8.The _ of whites in
6、 poverty in the U.S. is greater than that of blacks and Hispanics.a)percentageb)total numberc)fractiond)none of the above9.In a public goods context, it is difficult to measure its impact on real income becausea)public goods are generally free to the public.b)they make up a small percentage of total
7、 GDP.c)people do not reveal how they value public goods.d)inflation decreases the value of the good.10.In-kind transfers have increased in popularity because ofa)paternalism.b)commodity egalitarianism.c)administrative feasibility.d)political attractiveness.e)all of the above.11.Maximizing the utilit
8、y of the person with the minimum utility is known asa)the minimax criterion.b)the maximin criterion.c)the Hicks-Kaldor criterion.d)the Corlett-Hague Rule.e)none of the above.12.An additive social welfare function woulda)add the incomes of the lowest ten percent of income earners.b)subtract out the u
9、tility functions of all people who are unemployed.c)sum all individual utilities.d)maximize the utility of the person with the minimum utility.13.Changing the price of good Y willa)only affect the demand for that good.b)have effects across some markets.c)keep prices down in all markets.d)have no eff
10、ect.e)do none of the above.14.Giving poor people food instead of cash for fooda)is an in-kind transfer.b)will benefit some more than others, depending on their utility function.c)is politically popular.d)is all of the above.15.The scope of the EITC program changed dramatically ina)1963.b)1983.c)1993
11、.d)1996.e)2003.Discussion Questions1.Suppose there are only two people, Mr. Mullinax and Ms. Fleming, who must split a fixed income of $500. For Mr. Mullinax, the marginal utility of income is MUm=600-2Im, while for Ms. Fleming, marginal utility is MUf=600-3If , where Im, If are the amounts of incom
12、e to Mr. Mullinax and Ms. Fleming, respectively.a)What is the optimal distribution of income if the social welfare function is additive?b)What is the optimal distribution if society values only the utility of Ms. Fleming? What if the reverse is true? Comment on your answer.c)Finally, comment on how
13、your answers change if the marginal utility of income for both Mr. Mullinax and Ms. Fleming is constant such that MUm=250= MUf. (This one is subtle.)2.Suppose that in a certain society $10,000 is the official cut-off of income for the poor. This means that any person making less than $10,000 is cons
14、idered poor. Suppose further that there are three people in this society: Randy, Marlon, and Tito, with incomes of $9,900, $9,900, and $5,000, respectively.a)How many people are in poverty?b)How much income would it take, on average, to lift every poor person out of poverty?c)What if some policy cau
15、sed $200 to be taken from Tito and given to Randy. How many people are in poverty now? How much income would it take, on average, to lift every poor person out of poverty?3.Suppose Lefty has utility characterized by the equation: Ul = 13I1/2, where I is income. In addition, Righty has utility charac
16、terized by the equation: Ur = 4I2, where I is income.a)If each had $100, which one would have the higher level of utility?b)What equal amount of income could we give to both that would also give them the same level of utility?True/False/Uncertain Questions1.Giving in-kind transfers will ensure that
17、people get proper amounts of nutrition.2.Ignoring taxes when making redistributive decisions has no impact on equity.3.A redistribution is Pareto efficient if no one is made worse off afterward.4.Social welfare functions require that a society has at least three people living in it.5.Income is the o
18、nly accurate measure that can be used to assess a persons wealth.6.Ethics play a key role in income redistribution.7.Poverty is relative and not absolute.8.The highest 20% of money earners should only have 20% of all income.9.Refer to Table 7.1 in your textbook. Relative to their starting position,
19、people in the fourthfifth of the income distribution have seen the greatest decrease in their share of income.10.The poverty rate in the United States has decreased by more than 50% over the last 40 years.Essay Questions1.How would poverty be affected in the United States if the measure were changed
20、 to a more comprehensive one that included the value of in-kind transfers, medical services, and taxes?2.State whether you agree with the following statement and why: “It doesnt make sense to give poor people cash since theyll spend it on cigarettes and lottery tickets instead of needed items.”3.How
21、 would you feel about a policy that would raise someone elses income without lowering yours? Are you any worse off?Answers to CHAPTER 7 - Income Redistribution: Conceptual IssuesAnswers to Multiple-Choice Questions1.c2.d3.c4.d5.a6.d7.b8.b9.c10.e11.b12.c13.b14.d15.cAnswers to Discussion Questions1.Th
22、e setup should be Im + If = 500 and 600-3If =600-2Im.a)Solving this system of two equations and two unknowns gives Im = 300 and If = 200.b)Since these two lines intersect at 0, the optimal distributions would remain Im = 300 and If = 200.c)Since they are constant horizontal lines at $250, any distri
23、bution of the $500 will be optimal.2.a)Three people are in poverty.b)It would take $1,733.33, on average, to lift them out.c)Two people are in poverty but it would now take $2,650.00, on average, to lift them out.3.a)Lefty would have 130. Righty would have 40,000.b)The only level that would work for
24、 both is 0.Answers to True/False/Uncertain Questions1.U2.F3.T4.F5.F6.T7.T8.U9.F10.TAnswers to Essay Questions1.Estimates have shown that poverty measures that are more comprehensive yield results about the changing face of poverty in the United States that are dramatically different than the ones we
25、 are currently using.2.It is difficult to predict what any individual will do without knowing his or her preferences. Cash for some will allow them to reach higher levels of utility, while for others in-kind transfers may be more effective. Generalized statements are too broad.3.If total income is fixed, it would be impossible to raise the income of some without lowering the income of others. If income is not fixed, those who do not experience an increase in income while others income increases, will be worse off in a relative sense.
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