Question

PART A

In the United States, the gap between the higher-income groups and the lower-income groups, as a percentage of what they earn relative to the country's total earnings, has widened the past several decades. Therefore, we can conclude that:

The relative gap between the richest 20% of our income earners and the poorest 20% of our income earners has narrowed.

the richest 20% of our income earners has gotten poorer and the poorest 20% of our income earners has gotten richer.

in relative (comparative) terms, the rich have gotten richer and the poor have gotten poorer.

in absolute dollar amounts, the rich have gotten richer and the poor have gotten poorer.

PART B

The Lorenz Curve is a curve that illustrates a country's income inequality. The straighter the curve:

the closer the country is to perfect income inequality.

the more poverty exists.

the closer the country is to a perfect economy.

the more income equality exists.

Answer 1

a) As the gap between the poor and the rich have widened that means the rich are getting richer and the poor and getting poorer. The answer is "C".

b) The closer the Lorenz to the 45* line i.e. the straighter it is the less income inequality exist in the economy. The answer is "C", the closer the country is to a perfect economy.