Poverty: Old and New Approaches
Poverty: Old and New Approaches
to a Persistent Problem
True/False Questions
1.When an individual's resources are not sufficient to provide a minimum standard of living, they are considered poor.
ANSWER: T
2.The official poverty line is the cost of housing multiplied by three.
ANSWER: F
3.If a family’s money income is less than its relevant poverty threshold, only the children in the family are counted as poor.
ANSWER: F
4.Many economists feel that the official measure of poverty overstates the number of poor because it does not include relevant and important sources of income.
ANSWER: T
5.According to the federal government's official measure, the U.S. poverty rate fell from 17.3 percent in 1965 to 11.1 percent in 1973.
ANSWER: T
6.Since 1973, poverty has generally increased in the United States.
ANSWER: T
7.The official poverty threshold is the annual cost of a nutritionally adequate diet multiplied by two.
ANSWER: F
8.The government adjusts the poverty threshold each year for changes in the Consumer Price Index.
ANSWER: T
9.Increasing unemployment, the changing composition of the poverty population, and the effects of government transfers on work incentives all contribute to the increase in the pre-transfer poverty rate.
ANSWER: T
10.The poverty rate for the elderly has declined significantly over the past 35 years, falling below the all ages poverty rate by 1982.
ANSWER: T
11.Over the past 40 years, there has been a significant reduction in the poverty rate for persons living in female headed families.
ANSWER: T
12.Labor market discrimination is a major factor in explaining why poverty is concentrated in some groups in society.
ANSWER: F
13.The poverty rates for people living in black and Hispanic households fell both absolutely and relative to the poverty rate in white, non Hispanic families in the 1990s.
ANSWER: T
14.Unemployment plays only a minor role in maintaining high poverty rates among African-Americans.
ANSWER: F
15.There is evidence that earnings differentials between white males and others is less among individuals with less education.
ANSWER: T
16.Policies aimed at reducing labor market discrimination would significantly reduce poverty in the United States.
ANSWER: F
17.Government transfers may indirectly decrease the income of the poor by reducing work effort.
ANSWER: T
18.Transfers reduce work effort because they reduce the opportunity cost of leisure.
ANSWER: T
19.In general, the greater the break-even net income relative to the poverty threshold, the greater the target efficiency of a program.
ANSWER: F
20.The benefit reduction rate is the rate at which a recipient's benefits decline as income increases.
ANSWER: T
21.Food Stamps provide cash payments to the working poor.
ANSWER: F
22.Medicaid is the largest of the public assistance programs.
ANSWER: T
23.Evidence shows that public assistance programs have contributed significantly to the formation of female-headed households.
ANSWER: F
24.The majority of the poor live in households where at least one parent is working.
ANSWER: T
25.Temporary Assistance for Needy Families (TANF), is the nation's safety net program for low income families.
ANSWER: T
26.Workfare has been proposed as a method of increasing the earnings of the working poor.
ANSWER: F
27.The working poor have received numerous benefits from the employment and training assistance programs offered by the government.
ANSWER: F
28.Under a minimum wage program, low-wage workers receive a subsidy for each hour worked.
ANSWER: F
29.Each state is allowed to design and implement its own TANF program, including benefit levels and criteria for eligibility, however, they must spend at least 75 percent of the amount they were spending from their own funds on AFDC in 1994.
ANSWER: T
30.TANF households are limited to 5 years of support in a lifetime, but states may impose shorter lifetime limits.
ANSWER: T
31.TANF recipients are not permitted to engage in work or "work activities," such as job training, looking for work, or schooling.
ANSWER: F
Multiple-Choice Questions
1.The official poverty threshold:
a.is determined by multiplying the cost of a nutritionally adequate diet by three.
b.is determined by examining a household's money income and in-kind transfers.
c.makes no allowances for changes in prices.
d.is determined by comparing a household's income to median income.
ANSWER: a
2.A household is considered poor if:
a.their income is less than the median income.
b.they receive no in-kind transfers.
c.their income is below the official poverty threshold.
d.their income is less than the average cost of housing multiplied by four.
ANSWER: c
3.In-kind transfers refer to:
a.cash payments made by government that can be used for any purpose.
b.transfer payments made by government that must be used for specific purposes.
c.transfers made by private charities such as the Salvation Army that provide money to poor households.
d.the large transfers made under the Social Security program to elderly individuals.
ANSWER: b
4.Many economists are not satisfied with the official measure of poverty because:
a.the official measure of poverty does not adjust for price changes.
b.the official measure of poverty does not adjust for family size.
c.the official measure of poverty adjusts for the effect of taxes on income.
d.the official measure of poverty excludes relevant and important sources of income.
ANSWER: d
5.Which of the following is an example of cash assistance?
a.Food Stamps.
b.Housing Assistance.
c.Supplemental Security Income.
d.Medicaid.
ANSWER: c
6.Including in-kind transfers and other resources not reported in surveys of money income would:
a.increase the official poverty rate.
b.decrease the official poverty rate.
c.have no effect on the official poverty rate.
d.have an ambiguous effect on the official poverty rate.
ANSWER: b
7.When the general price level increases, government:
a.increases the poverty threshold.
b.decreases the poverty threshold.
c.does not change the poverty threshold.
d.increases the earned-income tax credit.
ANSWER: a
8.Which of the following statements is correct?
a.The poverty rate in the United States has fallen since 1959.
b.Large increases in government cash transfers account for part of the increase in the poverty rate in the United States over the 1959-1973 period.
c.Rapid economic growth contributed to a decline in the poverty rate in the United States during the 1959-1973 period.
d.Benefits provided by cash transfer programs caused the poverty rate to be higher in the 1970s than it would have been in the absence of these programs.
ANSWER: c
9.The poverty rate is defined as:
a.the ratio of poor people to the U.S. population.
b.the ratio of poor people to rich people.
c.the ratio of poor people to employed people.
d.the ratio of poor people to unemployed people.
ANSWER: a
10.All of the following help to explain the increase in the pre-transfer poverty rate over the 1979-2001 time period except:
a.the changing composition of the poverty population.
b.a decline in government transfers.
c.the increasing incidence of unemployment.
d.the impact of government transfers on work incentives.
ANSWER: b
11.Over the 1979-2001 period the government cash transfers:
a.increased the average poverty rate by 3.5 percent.
b.increased the average poverty rate among older Americans.
c.increased the average poverty rate among female-headed households.
d.reduced the average poverty rate by 7.5 percent
ANSWER: d
12.Which of the following statements is not correct?
a.TANF is financed by the federal government through bloc grants to the states.
b.Each state is allowed to design and implement its own TANF program, including benefit levels and criteria for eligibility.
c.TANF recipients are prohibited from required to engage in work or "work activities."
d.TANF households are limited to 5 years of support in a lifetime, but states may impose shorter lifetime limits.
ANSWER: c
13.Public assistance programs provide benefits in the event of:
a.inflation.
b.unemployment.
c.retirement.
d.low-income.
ANSWER: d
14.A package of means-tested transfers would not include which of the following?
a.TANF.
b.Food stamps.
c.EITC.
d.Wage subsidies.
ANSWER: d
15.The lack of affordable childcare can significantly hinder the labor market participation of adults in poor families. Which of the following are provided by federal and state governments to provide childcare assistance?
a.The Child and Dependent Care Tax Credit.
b.The Child Care and Development Fund.
c.The Child Tax Credit.
d.All of the above.
ANSWER: d
16.All of the following have contributed to the growth in female-headed households except:
a.an increase in divorce rates.
b.a decline in out-of-wedlock childbearing.
c.a decline in remarriage rates.
d.a decline in marriage rates.
ANSWER: b
17.Individuals in households headed by females are more likely to live in poverty because:
a.family income generally falls as a result of divorce.
b.it may be difficult for a mother who has never been married to collect child support.
c.females generally have less education than males, and therefore may be able to obtain only low-paying jobs.
d.All of the above.
ANSWER: d
18.Jack and Jill are both drillers for Mother Goose Well, Inc. They are equally qualified for the position, but Jack receives a higher salary than Jill. This is an example of:
a.labor market discrimination.
b.nonemployment discrimination.
c.occupational discrimination.
d.the male-female wage differential.
ANSWER: a
19.The earnings differential is the greatest between white males and:
a.white females.
b.black males.
c.black females.
d.Hispanic females.
ANSWER: d
20.Evidence indicates that the unexplained differences in pay between white males and other workers is:
a.relatively large.
b.relatively small.
c.growing at a relatively rapid rate.
d.is nonexistent.
ANSWER: b
21.The authors argue that labor market discrimination contributes little to poverty because:
a.the earnings differential between individuals with little education is relatively small.
b.poverty rates have persisted over time even though earnings differentials have narrowed.
c.nearly half of those living in poverty live in families headed by white males.
d.all of the above.
ANSWER: d
22.Which of the following statements is incorrect?
a.Increases in unemployment tend to increase the poverty rate.
b.The poverty rate of African-Americans has remained relatively constant over 1990s.
c.Some of the poverty gap between whites and African-Americans is due to discrimination.
d.Productivity differentials explain little of the wage differential between whites and Hispanics.
ANSWER: d
23.Supplemental Security Income provides:
a.income for food to low-income families.
b.income to the elderly, blind, and disabled who are poor.
c.income for medical purposes to low-income families.
d.supplements the income of the poor in general, and can be used for any purpose.
ANSWER: b
24.Temporary Assistance for Needy Families (TANF):
a.is the nation's safety net program for low income families.
b.provided cash assistance to the working poor.
c.provided cash assistance to the disabled who are poor.
d.provided families with dependent in-kind benefits for food and medical services.
ANSWER: a
25.Which of the following statements is correct.
a.TANF is financed by the federal government through bloc grants to the states.
b.TANF is the nation's safety net program for low income families.
c.TANF was established as a replacement for AFDC.
d.All of the above.
ANSWER: d
26.The benefit that an individual receives when they have no income is referred to as:
a.the net benefit.
b.the break-even benefit.
c.the basic benefit.
d.the maximum benefit.
ANSWER: c
27.The income level at which the benefit falls to zero is referred to as:
a.the zero level of net income.
b.the basic net income.
c.the maximum income.
d.the break-even net income.
ANSWER: d
28.The rate at which benefits fall when income rises is:
a.the benefit reduction rate.
b.the benefit reduction rate.
c.the basic welfare reduction rate.
d.the break-even rate.
ANSWER: a
29.Suppose the basic benefit is $100, the benefit reduction rate is 50 percent, and net income is zero. What is the benefit?
a.$50.
b.$100.
c.$150.
d.$200.
ANSWER: b
30.Suppose the basic benefit is $200, the benefit reduction rate is 40 percent, and net income is $100. What is the benefit?
a.$340.
b.$240.
c.$160.
d.$140.
ANSWER: c
31.Suppose the benefit is $200, the benefit reduction rate is 50 percent, and net income is $50. What is the basic benefit?
a.$300.
b.$275.
c.$250.
d.$225.
ANSWER: d
32.Suppose the basic benefit is $360 and the benefit reduction rate is 90 percent. What is the break-even net income?
a.$3,600.
b.$1,000.
c.$400.
d.$324.
ANSWER: c
33.Suppose the break-even net income is $700 and the basic benefit is $350. What is the benefit reduction rate?
a.20 percent.
b.30 percent.
c.40 percent.
d.50 percent.
ANSWER: d
34.In order to determine the target efficiency of a program, the:
a.basic benefit should be examined.
b.the benefit reduction rate should be examined.
c.the break-even net income should be examined.
d.the benefit should be examined.
ANSWER: c
35.Which program would be the most target efficient?
a.A program with a break-even net income of $1,000.
b.A program with a break-even net income of $900.
c.A program with a break-even net income of $800.
d.A program with a break-even net income of $700.
ANSWER: d
36.Government provides public assistance thorough:
a.the food stamp program.
b.the Medicaid program.
c.housing assistance programs.
d.All of the above.
ANSWER: d
37.The largest public assistance program is:
a.Aid to Families with Dependent Children.
b.food stamps.
c.Medicaid.
d.housing assistance.
ANSWER: c
38.The public assistance program that likely has the most adverse effect on work effort is:
a.TANF.
b.food stamps.
c.housing assistance.
d.Supplementary Security Income.
ANSWER: a
39.TANF likely has an adverse effect on work effort because:
a.it goes to households with dependent children.
b.it has a relatively high benefit reduction rate.
c.it has a relatively low benefit reduction rate.
d.it is targeted towards female-headed households.
ANSWER: b
40.A tax on earned income will:
a.decrease work effort because individuals can work less and still maintain their standard of living.
b.increase work effort because the opportunity cost of leisure (the net wage) is increased.
c.have an ambiguous effect on work effort because it will lower the opportunity cost of leisure, but at the same time will cause individuals to work harder so as to maintain their living standards.
d.increase work effort because the increased leisure that some individuals take as the opportunity cost of leisure falls is more than offset by the number of individuals who work harder to maintain their living standards.
ANSWER: c
41.The Child Care and Development Fund (CCDF):
a.is a federal government bloc grant that provides the states with money to help low income working families pay for childcare.
b.is a federal program that allows an employer to provide up to $5,000 in assistance to employees to help them pay certain child and dependent care expenses, childcare included.
c.provides up to $500 per dependent child under age 17 for single taxpayers with income of $84,000 or less, and for married taxpayers with income of $119,000 or less.
d.is provided by about half of the state governments to provide a credit against income tax liability for childcare expenses for working taxpayers.
ANSWER: a
42.The Dependent Care Assistance Program (DCAP):
a.is a federal government bloc grant that provides the states with money to help low income working families pay for childcare.
b.is a federal program that allows an employer to provide up to $5,000 in assistance to employees to help them pay certain child and dependent care expenses, childcare included.
c.provides up to $500 per dependent child under age 17 for single taxpayers with income of $84,000 or less, and for married taxpayers with income of $119,000 or less.
d.is provided by about half of the state governments to provide a credit against income tax liability for childcare expenses for working taxpayers.
ANSWER: b
43.The Child Tax Credit (CTC):
a.is a federal government bloc grant that provides the states with money to help low income working families pay for childcare.
b.is a federal program that allows an employer to provide up to $5,000 in assistance to employees to help them pay certain child and dependent care expenses, childcare included.
c.is provided by the federal government, and allows up to $500 per dependent child under age 17 for single taxpayers with income of $84,000 or less, and for married taxpayers with income of $119,000 or less.
d.is provided by about half of the state governments to provide a credit against income tax liability for childcare expenses for working taxpayers.
ANSWER: a
44.The effect of the benefit reduction rate on work effort is:
a.ambiguous.
b.negative because it provides the individual with more money to "purchase" leisure.
c.negative because it reduces the opportunity cost of leisure.
d.positive because it increases the opportunity cost of leisure.
ANSWER: c
45.Which of the following is a policy designed primarily to help the working poor?
a.workfare.
b.child support assurance.
c.TANF.
d.earnings supplements.
ANSWER: d
46.Congress, under the Family Support Act of 1988,
a.required states to expand Medicaid coverage for up to 12 months for families leaving AFDC for work.
b.broke the direct link between eligibility for cash assistance and Medicaid.
c.provides coverage to all children younger than six living in families with incomes below 133 percent of the federal poverty level, once the TMA is exhausted.
d.All of the above.
ANSWER: d
47.Extending Medicaid to all families whose income is below the poverty line would:
a.increase the tax cost of Medicaid.
b.decrease the tax cost of Medicaid.
c.significantly increase the opportunity cost of Medicaid.
d.decrease the opportunity cost of Medicaid.
ANSWER: a
48.In order to provide earnings supplements to the working poor government could:
a.lift restrictions that prevent the working poor from receiving AFDC payments.
b.provide a wage subsidy to the working poor.
c.lower the minimum wage so that employers would be willing to hire more of the working poor.
d.extend Medicaid coverage to the working poor.
ANSWER: b
49.Some feel that raising the minimum wage in order to help the working poor is undesirable because: