Chapter 11

The diagram shows the demand and supply curves of labor for a hypothetical economy. The government of this economy has introduced a minimum wage (W1) set above the equilibrium wage rate (We). The introduction of this minimum wage has an impact on the Lorenz curve of this economy. What is the most likely impact on the Lorenz curve?

• A. inwards as all employees receive a higher wage.

• B. inwards as there is an increase in the level of employment.

• C. outwards as all employees receive a higher wage.

• D. outwards as there is an increase in the level of unemployment.

Country A's Lorenz curve is closer to the line of perfect equality than Country B's Lorenz curve. All other things being equal, which of the following is true?

• Country A has a larger Gini coefficient than country B.

• Country B has a more equitable distribution of income than country A.

• Country A's Lorenz curve will move closer to country B's curve if country A's top marginal income tax rate is decreased.

• Country B's Lorenz curve will move closer to country A's curve if country B's top marginal income tax rate is decreased.

Which of the following correctly ranks, from largest to smallest, the sources of income as a percentage of Australian household income?

• Returns to labour, returns to enterprise, returns to land and capital, transfer payments

• Returns to labour, transfer payments, returns to land and capital, returns to enterprise

• Returns to labour, transfer payments, returns to enterprise, returns to land and capital

• Returns to labour, returns to enterprise, transfer payments, returns to land and capital

The diagram refers to the change in the distribution of income in a hypothetical economy. Which of the following is most likely to increase as a result of the change in income inequality from Year 1 to Year 2?

• Consumption

• Labour force mobility

• Risk-taking by entrepreneurs

• Saving and capital investment

Which of the following government policies would be most likely to reduce an economy's Gini coefficient?

• A decrease in the goods and services tax rate and a decrease in transfer payments

• A decrease in expenditure on health and an increase in deregulation of the labour market

• An increase in childcare subsidies for low-income earners and an increase in the highest marginal income tax rate

• An increase in the income tax free threshold and a decrease in compulsory employer superannuation contributions

The diagram shows the Lorenz curves for a hypothetical economy, where the curve has shifted from A to B. All other things being equal, which of the following changes might explain this shift?

• Decrease in the top marginal tax rate and Increase in business profits

• Decrease in the top marginal tax rate and Decrease in business profits

• Increase in the top marginal tax rate and Increase in business profits

• Increase in the top marginal tax rate and Decrease in business profits

The diagram shows the Lorenz curves for Country A and Country B. Which of the following statements is most likely to explain the different income distribution in Country A and Country B?

• Country A has higher rates of saving than Country B.

• Country A has higher GDP per capita than Country B.

• Country A has higher social welfare spending than Country B.

• Country A has higher incentives for entrepreneurs than Country B.

Which of the following is most likely to reduce income inequality?

• An increase in the minimum wage

• A decrease in unemployment benefits

• Decentralisation of the wage determination system

• Lower government funding for education and training

Which of the following is an economic cost of a rise in the Gini coefficient?

• An increase in economic growth

• An increase in the mobility of labour

• An increase in risk-taking by entrepreneurs

• An increase in government welfare support

The diagram refers to the distribution of income and wealth in a hypothetical economy. According to the diagram, which statement is correct for this economy?

• Wealth has a higher Gini coefficient than income and the distribution of wealth is more unequal than the distribution of income.

• Income has a higher Gini coefficient than wealth and the distribution of income is more unequal than the distribution of wealth.

• Wealth has a lower Gini coefficient than income and the distribution of wealth is more equal than the distribution of income.

• Income has a higher Gini coefficient than wealth and the distribution of income is more equal than the distribution of wealth.