Orange08 wrote:
The United States government uses only a household's cash income before taxes to determine whether that household falls below the poverty line in a given year; capital gains, non-cash government benefits, and tax credits are not included. However, yearly cash income is not a fool-proof measure of a given household's disposable income. For example, retirees who live off of capital gains from an extensive portfolio could earn hundreds of thousands of dollars, yet be classified by the government as living in "poverty" because this income is not included in the calculation.
Which of the following, if true, validates the contention that the government's calculation methods must be altered in order to provide statistics that measure true poverty?
a ) For more than 99% of those classified as living in poverty, yearly cash income comprises the vast majority of each household's disposable income.
b) While the government’s calculation method indicated a 12.5% poverty rate in 2003, the same calculation method indicated anywhere from a 9% to a 16% poverty rate during the preceding decade
c) Most established research studies conducted by the private sector indicate that the number of people truly living in poverty in the U.S. is less than that indicated by the government’s calculation method.
d) Several prominent economists endorse an alternate calculation method which incorporates all income, not just cash income, and adjusts for taxes paid and other core expenses.
e) The government’s calculation method also erroneously counts those who do not earn income in a given year but who have substantial assets on which to live during that year.
'
Govt uses family's cash income to determine whether it falls below poverty line.
The Govt does not consider other factors (A, B and C)
But cash income is not a fool proof method of disposable income (e.g. retirees getting high CGs)
What strengthens that Govt's methods need to change to measure true poverty?
If we can say that true poverty is different from what the Govt measures, then we can say that the Govt needs to change the method. If we see that Govt is measuring true poverty almost at point, then the change may not be required and the Govt's measure may be a good indicator.
a ) For more than 99% of those classified as living in poverty, yearly cash income comprises the vast majority of each household's disposable income.
This says that for 99% people classified as poor, cash income = disposable income.
So the method works in 99% cases hence the cash income measure seems to be a good indicator of disposable income in our circumstances. So our conclusion is not strengthened that we need to change the Govt method.
b) While the government’s calculation method indicated a 12.5% poverty rate in 2003, the same calculation method indicated anywhere from a 9% to a 16% poverty rate during the preceding decade
How the rate indicated was diff over diff years is irrelevant.
c) Most established research studies conducted by the private sector indicate that the number of people truly living in poverty in the U.S. is less than that indicated by the government’s calculation method.
So most other studies show that true poverty is less than what Govt is calculating. So it seems that cash income is not a good measure of disposable income for a substantial number of cases in reality and hence the Govt should change its method. Strengthens
d) Several prominent economists endorse an alternate calculation method which incorporates all income, not just cash income, and adjusts for taxes paid and other core expenses.
It doesn't matter if other economists endorse another method. We need to find whether the Govt's method is good enough or not.
e) The government’s calculation method also erroneously counts those who do not earn income in a given year but who have substantial assets on which to live during that year.
This just shows another factor D missing in Govt's method. But does that affect the actual numbers calculated? We cannot say. Perhaps all factors A, B, C and D are irrelevant in our situation because people don't have these other earnings.
Answer (C)
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