Test on Labor Economics: Human Capital and Inequality

Question 1: Recent technological changes have been complementary to skilled labor while substituting for unskilled labor.

A. Yes

B. No

Explanation: According to the study materials, recent technological changes have been complementary to skilled labor while substituting for unskilled labor.

Question 2: Based on the information provided, what does a higher Gini coefficient indicate?

A. Greater education inequality

B. Greater income inequality

C. Less income inequality

D. Greater labor mobility

Explanation: Higher values of the Gini coefficient are associated with greater income inequality, as stated in the study materials.

Question 3: The Gini coefficient in a perfectly unequal society is 0.

A. Yes

B. No

Explanation: The Gini coefficient in a perfectly unequal society is 1, while a perfectly equal society has a Gini coefficient of 0.

Question 4: The Gini coefficient always falls when the total amount of income in an economy increases.

A. Yes

B. No

Explanation: Statement D in question 20 indicates that 'It must fall when the amount of income in an economy increases' is not a true statement about the Gini coefficient. Therefore, the Gini coefficient does not always fall when the total amount of income in an economy increases.

Question 5: If an economy experiences an increase of $20,000 in income for every household, how would this change affect the Gini coefficient?

A. The Gini coefficient will increase.

B. The Gini coefficient will decrease.

C. The Gini coefficient will stay the same as all households received the same increase in income.

D. It is impossible to determine how the Gini coefficient will change without knowing the original income distribution.

Explanation: According to the study materials, when the income of all households increases by a fixed amount ($20,000 in the example), the Gini coefficient will decrease. This indicates a reduction in relative income inequality because the proportional difference between incomes narrows.