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Chapter 15: Q.25 (page 378)

How has the inequality of income changed in the

U.S. economy since the late 1970s?

Short Answer

Expert verified

The income inequality has increased since 1970s.

Step by step solution

01

Step 1.  Income inequality 

Income inequality is difference in distribution of income among individuals within country.

02

Step 2.  Since the late 1970s 

In the 1970, the middle class households had a 62% share in the aggregate income of the nation; this rate fell to 42% in 2018. Similalry, the income share of lower-class households fell from 10% in 1970 to 9% in 2018.

03

Step 3. Inequality in income now

If we see current statistics, 20 percent of the population earns 51.9 percent of the U.S income. 23 percent of all income is earned by the top 5 percent and 3.1 percent of the nation's income is earned by 20 percent of the bottom.

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Most popular questions from this chapter

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?

What goods and services would you include in an

estimate of the basic necessities for a family of four?

How does the TANF attempt to loosen the poverty trap?

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’s incentive to work.

We have discovered that the welfare system discourages recipients from working because the more income they earn, the less welfare benefits they receive. How does the earned income tax credit attempt to loosen the poverty trap?
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