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Chapter 15: Q.31 (page 378)
If a family of three earned $20,000, would they
be able to make ends meet given the official poverty threshold?
Family of three would hardly be able to survive on an earning of $20,000.
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How has the inequality of income changed in the
U.S. economy since the late 1970s?
Exercise 15.2 and Exercise 15.3 asked you to
describe the labor-leisure tradeoff for Jonathon. Since,
in the first example, there is no monetary incentive for
Jonathon to work, explain why he may choose to work
anyway. Explain what the opportunity costs of working
and not working might be for Jonathon in each example.
Using your tables and graphs from Exercise 15.2 and
Exercise 15.3, analyze how the government welfare
system affects Jonathan鈥檚 incentive to work.
The poverty rate would be substantially lower if the market value of in-kind transfers were added to family income. The largest in-kind transfer is Medicaid, the government health program for the poor. Lets say the program costs \(10,000 per recipient family.
a. If the government gave each recipient family a \)10,000 check instead of enrolling them in the Medicaid program, do you think that most of these families would spend that money to purchase health insurance? Why? (Recall that the poverty level for a family of four is about $25,000.)
b. How does your answer to part (a) affect your view about whether we should determine the poverty rate by valuing in-kind transfers at the price the government pays for them? Explain.
c. How does your answer to part (a) affect your view about whether we should provide assistance to the poor in the form of cash transfers or in-kind transfers? Explain.
Consider two of the income security programs in the United States: Temporary Assistance for Needy Families (TANF) and the Earned Income Tax Credit (EITC).
a. When a woman with Children and very low income earns an extra dollar, she receives less in TANF benefits. What do you think is the effect of this feature of TANF on the labor-supply of low-income women? Explain.
b. The EITC proves greater benefits as low-income workers earn more income (up to a point). What do you think is the effect of this program on the labor-supply of low-income individuals? Explain.
c. What are the disadvantages of eliminating TANF and allocating the savings to EITC?
This problem uses the analogy of a 鈥渓eaky bucket鈥� to explain one constraint on the redistribution of income.
a. What elements of the U.S. system for redistributing income create the leaks in the bucket? Be specific.
b. Between Republicans and Democrats, who do you think generally believes that the bucket used for redistributing income is leaky? How does that belief affect their views about the amount of income redistribution that the government should undertake?
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