Suppose That a Family Saves and Borrows to Buffer Itself

question 7

Multiple Choice

Suppose that a family saves and borrows to buffer itself against changes in income. These actions relate to which problem in measuring inequality?

• A)In-kind transfers
• B)Negative income tax
• C)Transitory versus permanent income
• D)Economic mobility

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Definitions:

Computational Skills

The ability to use mathematical techniques and algorithms to solve problems and perform calculations.

Fairness

A person’s opinion as to whether a price, wage, or allocation is considered morally or ethically acceptable.

Systematic Errors

Suboptimal choices that (1) are not rational because they do not maximize a person’s chances of achieving his or her goals and (2) occur routinely, repeatedly, and predictably.

Self-Interested

Acting in a way that is most beneficial to oneself, often used in the context of economic behavior assuming individuals act to maximize their own welfare.