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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?

Briefly explain the differences between TANF, the earned income tax credit, SNAP, and Medicaid.

How does the TANF attempt to loosen the poverty trap?

What are the main reasons economists give for the

increase in inequality of incomes?

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.
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