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# Send your completed answers to these questions to me directly through the Blackboard messaging system.

In chapter two of the textbook the author talks about for whom America produces. The textbook looks at the distribution of income in the U.S. by quintiles (20% increments of the population). It shows the share of total income going to each quintile of the population. Go to index of the textbook and look for Lorenz Curve (distribution) and read the sections listed to get a better idea of what the Lorenz curve shows. U.S. Distribution of Income (2000) Quintile Lowest fifth Second fifth Third fifth Forth fifth Highest fifth Percentage share of income 3.6 8.9 14.9 23.0 49.6

Question#1a. Use the data for the U.S. for the distribution of income (for the year 2000) given above to draw a Lorenz curve for the U.S. (you do not have to turn this graph in). Is the Lorenz curve a straight line or is it curved?

Question #1b. Use information either from the textbook or from a recent publication on income distribution for the US to draw a second Lorenz curve. Explain how inequality or equality is changing in the US based on the data you have graphed in your two Lorenz curves. Question #2. Suppose that the voters in the U.S. have decided through a ballot measure to tax the richest quintile by 10 percent. The tax will then be redistributed evenly to the poorest two quintiles. (2A) What is the share of income that the richest quintile now shares? (2B) What is the share of income that the poorest quintile now shares? (2C) What is the share of income that the 2nd poorest quintile now shares? (2D) Is the income distribution more equal after this policy has been implemented? Explain? Question#3. Find data on four other countries income distribution and draw the Lorenz curve for each (you do not have to turn these graphs in) but you will need them to answer the questions that follow). Note that you can disregard the data with the 10% lowest and 10% highest income. You only need to use the Lowest 20% Second 20% Third 20% Fourth 20% Highest 20% numbers to draw your Lorenz curves. The Human Development Report can be found at http://hdr.undp.org/en/media/HDR05_complete.pdf Table 15 Inequality in income or consumption has income distributions for a number of countries.

The World Bank Group web site has income distributions for a wide range of countries. http://www.worldbank.org/wdr/2000/pdfs/engtable5.p df or http://www.worldbank.org/poverty/wdrpoverty/report /tab5.pdf. You may also find this information by doing a Google search for Distribution of income or consumption. This site also income distributions for a number of countries, http://siteresources.worldbank.org/DATASTATISTICS/ Resources/table2_7.pdf. (3A) Which country has the most equal distribution from the countries you have selected? (3B) Which country has the least equal distribution from the countries you have selected? (3C) Which country has the highest income share for the richest quintile (the richest quintile in the U.S. share 49.4% in 1997 and 49.6 in 2000) from the countries you have selected? (3D) Which country has the lowest income share for the poorest quintile (the poorest quintile in the U.S. share 3.9% in 1997 and 3.6 in 2000) from the countries you have selected? Note: If you are familiar with a spreadsheet program you may also submit graphs with your answers as an attachment to the written answers. (This is optional).

These sites have a number of interesting tables that will be useful during the semester. http://hdr.undp.org/reports/global/2002/en/pdf/backo ne.pdf http://www.worldbank.org/data/databytopic/databyto pic.html http://www.cia.gov/cia/publications/factbook/ http://www.worldbank.org/poverty/wdrpoverty/report /tab5.pdf http://www.worldbank.org/poverty/wdrpoverty/report /ch12a.pdf table C. http://www.census.gov/prod/2001pubs/p60213.pdf This is the data for the U.S. that most closely duplicates the data for the year 2000. http://www.census.gov/prod/2004pubs/p60-226.pdf contains data on income distribution up to 2003 (in table A-3). Table A-3. Selected Measures of Household Income Dispersion: 1967 to 2003. Question#4. If a country has a per capita GDP of 5000 in 2003. a. What would the per capita GDP in 10 years if it is growing at 10 percent per year. b. What would the per capita GDP in 20 years if it is growing at 10 percent per year. c. How long would it take in years to enjoy the same level of per capita GDP that the U.S. enjoys today if

GDP per capita is growing at 10 percent per year? (suppose GDP per capita in the U.S. is 34,260). Question#5. U.S. gross domestic product increased from 4.8 trillion in 1980 to 6.8 trillion in 1990. During that same decade the share of durable goods (e.g., cars, appliances) fell from 18.5 percent to 17 percent. What was the value of durable goods output a) in 1980 b) in 1990 c) By how much did durable output change (increase or decrease)? d) Calculate the percentage change in durable goods from 1980-1990. Question#6. Using the following data answer the following questions. U.S. Distribution of Income Quintile Lowest fifth Second fifth Third fifth Forth fifth Highest fifth Average income \$10,300 \$25,400 \$42,500 \$65,600 \$141,100

## Percentage sh income 3.6 8.9 14.9 23.0 49.6

a) Compute the average income of a U.S. household. b) If all incomes were equalized by government taxes and transfer payments, how much would the average household in each income quintile gain (via transfers) or lose (via taxes)? (i) Lowest fifth_________________________________________________ _____________ (ii) Second fifth_________________________________________________ _____________ (iii) Third fifth_________________________________________________ _____________ (iv) Fourth fifth_________________________________________________ _____________ (v) Highest fifth_________________________________________________ _____________