Economics of Poverty – Review Questions for Final Exam
The exam will consist of seven questions taken word for word from this sheet. Questions labeled with ** will be worth 20 points each. Questions that do NOT have ** will be worth 8 points each. I will choose 4 questions from the ** questions and 3 questions that are not starred. The total points available, then, are 4*20 + 3*8 = 104.
October 28, Means-tested government programs
**Government means-tested programs for the poor consist of cash and in-kind (non cash) transfer programs. Briefly describe the main cash and in-kind means-tested programs for the poor. Is most of the government aid cash or in-kind and which programs are allocated the greater share of government resources? From an efficiency perspective, how do economists view cash transfers compared to in-kind transfers?
One of the major complaints against the old AFDC program was that people did not have an incentive to go out and work. What were the work incentives/disincentives of the program and what could the government have done to provide a greater work incentive? Include in your answer an explanation of the following terms: guarantee level (or income floor), clawback rate, and breakeven point.
**Government “ended welfare as we know it” by eliminating AFDC and creating TANF through the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. Analyze if welfare reform has been a good thing. How was welfare reformed? (How is TANF different from AFDC?) What are the good things and bad things about the reform? How effective have the reforms been?
The average American thinks of welfare (TANF) as being a federal government program, where everyone in America receives the same aid and has the same responsibilities. However, we know this is not accurate. In what ways does TANF vary from state to state? (Note, I don’t want you to list exactly what each individual state does, but rather in general terms discuss how the program differs for people in one state compared to another.)
November 5, Social Insurance Programs
**This question has two parts. First, describe what the Social Security program is. (What is its history, how is it funded, who is eligible, what determines how much someone receives in benefits?) Second, how does social security redistribute income in the United States and what is its role in alleviating poverty?
There is a lot of talk about the fact we need to fix the social security system or there won’t be any money for when younger Americans retire. You are concerned about your retirement so you decide to write President Bush and advise him. In you advice, explain to the President what the financial state of social security is, what changes have already been made to try to keep the program financially solvent, and what you think he should do to reform the system.
Unemployment insurance is a social insurance program to try to keep people from falling into poverty. How does the program work and what effect does the program seem to have on the prevalence of poverty in the United States?
**The article by Scholz and Levine, “The evolution of income support policy in recent decades,” examines how means-tested and social insurance transfer programs have changed over time and how effective they have been. What has happened over time to how the government allocates resources to these transfer programs? What have been the effects of these changes in resource allocations on poverty over time? (How has the antipoverty effectiveness of the tax and transfer system changed over time?) Based on their simulations, how effective are current programs in filling the poverty gap?
November 19, Labor Market Options
While this is America, land of opportunity, economists think that it is good that a fraction of the population is unemployed and unable to find work. What do we mean by full-employment and why doesn’t the government just aim for having zero unemployment in the United States? How does this affect our efforts to alleviate poverty?
**What is the Earned Income Tax Credit (EITC) program and how does it work? How does the credit change depending on how much a person is working/earning? Describe some strengths of the program and some problems with the program.
One argument for how government can reduce poverty is through investing in human capital. What attempts have the government made to invest in human capital and how effective have these different attempts been? (You may want to refer to the Karoly article in helping you answer this question.)
November 26, International Issues
**Based on both income and non-income factors (such as health, education, etc.), how would you characterize the extent of poverty throughout the world? How has the standard of living changed for developed countries over the past decades? (Remember, the more thorough of an answer you give, the better.)
What does the World Bank suggest the international community, particularly wealthier developed countries such as the United States, do to alleviate world poverty?
December 3, Pulling it all Together (these questions draw not only from this lecture and readings, but the whole semester)
**What do you think are the greatest strengths of the United States’ efforts at alleviating poverty? What do you think are the greatest weaknesses of the United States’ efforts at alleviating poverty?
**You are appointed to a position of power within President Bush’s cabinet and asked to come up with a strategy towards poverty in the United States. What are the greatest challenges we face? What do you suggest we do?