Midterm Test Answers

1. What percentage of Americans currently live below the poverty line?

   (b) About 13 percent

2. The Gini coefficient measures:

   (c) Inequality

3. Between 1970 and 1995, income inequality in the United States:

   (b) Rose

4. Which of the following groups faces the highest risk of poverty?

   (c) African American children

5. This figure is called:

   (d) A Lorenz curve

6. The figure indicates that between 1970 and 1990:

   (b) Household income inequality increased

7. Point prevalence estimates of homelessness in the United States indicate that:

   (a) The number of homeless roughly doubled between 1980 and 1990

8. Crime statistics provide clear evidence that, between 1980 and 1990:

   (b) Incarceration rates increased

9. Between 1975 and 1995 the gender gap in the earnings of full time workers:

   (d) Generally decreased

10. Studies of racial segregation of housing in the United States show that, between 1970 and 1990:

    (b) Racial segregation decreased

Part B

1. Explain what is meant by the poverty line, and describe how it is adjusted to take account of household needs.

   The poverty line is an income threshold that the Census Bureau uses to identify those who are poor. The poverty line was originally based on the cost of a minimally nutritious diet and multiplied by three to take account of other costs in running a household. The poverty line is adjusted each year for inflation and poverty lines are set according to family size.

2. Trends in income inequality and poverty between 1970s and 1995 appear puzzling in light of traditional economic explanations. Briefly describe these trends and explain why they appeared anomalous.

   Both inequality and poverty ceased to fall after 1970 (indeed inequality has increased steadily and poverty rose strong between 1979 and 1983). Traditional economic explanations emphasized that economic growth reduced poverty and inequality. In the recent period inequality and poverty grew despite economic growth.

3. Consider the following mobility table.

   3(a) Which group has the lowest risk of severe adult poverty?
   Whites who as children were never poor.
   3(b) Which group is most likely to experience at least some adult poverty?
   Blacks who, as children, experienced severe poverty.
   3(c) Describe racial differences in the impact of child poverty on the probability of moderate poverty for young adults.

   Child poverty among whites raises the risk of moderate poverty. There is little effect of child poverty on adult moderate poverty for blacks. All blacks face a similar risk of moderate poverty, regardless of childhood experiences with poverty.

4. Briefly outline Wilson's structural account of urban poverty among African Americans.

   Wilson's argument has four main parts: (1) rising joblessness among black males as a result of the movement of low-skill manufacturing jobs out of inner-cities; (2) a decline in the marriage rate among black women, because of the decline in the size of the pool of marriageable men; (3) selective out migration of middle and working class blacks of inn-city neighborhoods as a result of affirmative action and fair housing legislation; and (4) neighborhood effects resulting from the growing concentration of the urban poor.

5. Briefly explain how trends in poverty rates for the elderly and children indicate the influence of public policy and demographic shifts.

   Between 1960 and 1990 poverty rates among the elderly decreased substantially from about 30 percent to 10 percent, while poverty among children increased from about 10 percent 20 percent. The decrease in poverty among the elderly reflects the influence of public policy, namely the expansion of social security. The rise in poverty among children suggests the importance of demographic factors; in this case the rising incidence of single-mother families.

6. Describe trends in earnings inequality by education for men and women in the 1970s and 1980s and provide a brief explanation for these trends.

   Throughout the 1970s and 1980s earnings inequality by education grew. The real incomes of high school drop outs fell, while those with a college or higher degree maintained or increased their incomes. Earnings inequality by education rose more quickly for men than for women. Researchers argue that technological changes in the economy increasingly reward high-skill workers. This explains the relative earnings growth of the highly educated.

7. Briefly describe three policy measures that subsidize middle class living standards:

   (1) Road construction fueled the growth of suburbs and facilitated the rise in middle class homeownership; (2) tax deductions for interest payments on mortgages; (3) nontaxable private health insurance schemes; (4) tax deductions for children; (5) public investment in higher education.