economy for the years 1983 and 2015. The second col umn shows the poverty thresh

Question

economy for the years 1983 and 2015. The second col umn shows the poverty threshold. The third column price indes (CP), a measure of the overall level of prices. And the fourth column shows U.S. gross domestic product (GDP) per capita, a measure of the standard of living table presents data from the US Census Bureau on median and mean workers for the years 1972 and 2015. The Poverty Year threshold CPI (1982-1984-100) GDP per capita to eliminate the effect of inflation 56,066 Date from: U.S. Census Burea Bureau of Labor Statistice; Bureau of 1972 2015 Data rom U.S Cenaus Bureu a. By what percentage has median income a. By what factor has the poverty threshold increased from 1983 to 2015? That is, has it doubled, tripled. b. By what factor has the CPI (a measure of the overall over this period? By what percentage has mean price level) increased from 1983 to 2015? That is, has it doubled, tripled, and so on? b. Between 1972 and 2015, has the income c. By what factor has GDP per capita (a measu the standard of living) increased from 1983 to 2015? Initially, 99 of them have an income of $10,0 and one household has an income of $1 economy of Equalor each, That is, has it doubled, tripled, and so on? 4·There are 100 households in the d. What do your results tell you about how people offi- 000. cially classified as "poor" have done economically relative to other U.S. citizens? a. What is the median income in this econ is the mean income? 2. In the city of Metropolis, there are 100 residents, each of whom lives until age 75. Residents of Metropolis Through its poverty programs, the governm Equalor now redistributes income: it takes $990,000 have the following incomes over their lifetime: Through from the richest household and distributes it age 14, they earn nothing. From age 15 until age 29 equally among the remaining 99 households. b. What is the median income in this economy now? they earn 200 metros (the currency of Metropolis) per year. From age 30 to age 49, they earn 400 metros. From age 50 to age 64, they earn 300 metros. Finally at age 65 they retire and are paid a pension of 100 met ros per year until they die at age 75. Each year, every- one consumes whatever their income is that year (that is, there is no saving and no borrowing). Currently, 20 residents are 10 years old, 20 residents are 20 years old 20 residents are 40 years old, 20 residents are 60 years What is the mean income? Has the median income changed? Has the mean income changed? Which indicator (mean or median household income) hold's income? Explain. 5. The country of Marxland has the following income tax and social insurance system. Each citizen's income is taxed at an average tax rate of 100%. A social insur- ance system then provides transfers to each citizen uch that each citizen's after-tax income is exactly qual. That is, each citizen gets (through a govern- old, and 20 residents are 70 years old. a. Study the income distribution among all residents of Metropolis. Split the population into quintlies according to their income. How much incoan d a resident in the lowest quintile have. In tik sfer payment) an equal share of the income ond, third, fourth, and top quintiles? What si o total income of all residents goes to the residents in each quintile? Construct a table showing the share of total income that goes to each quintile. Does this at evetiue. What is the incentive for one individual itizin to work and earn income? What will the total tax revenue in Marxland be? What will be the after- tax income (including the transfer payment) for each citizen? Do you think such a tax system that creates perfect equality will work? income distribution show inequality? b. Now look only at the 20 residents of Metropolis who are currently 40 years old, and study the income distribution among only those residents. Split 6. The tax system in Taxilvania includes a negative income tax. For all incomes below $10,000, individ pay an income tax of-40% (that is, they receive ment of 40% of their income). For any income abo the $10,000 threshold, the tax rate on that addit those 20 residents into quintiles according to their income. How much income does a resident in the lowest quintile have? In the second, third, fourth and top quintiles? What share of total income of al

Explanation / Answer

Answer to question# 1)

Part a)

Poverty has increased from 5180 to 12331

Increase Percent = (12331*100)/5180

Increase percent = 238.05 ~ Doubled

.

Part b)

CPI has changed from 99.6 to 237.8

Increase percent = 237.8*100/99.6

Increase percent = 238.55 ~ doubled

.

Part c)

GDP has changed from 15525 to 56066

Increase percent = 56066*100/15525

Increase percent = 361.1337% ~ more than tripled

.

Part d)

The people classified as poor have done equally well as other people, since the increase for poor and CPI is the same percent

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