Because people's income vary other the life cycle and because there are transitory shocks to people's incomes the standard measures of income distribution ?
Correct answer: A. exaggerate the inequality of living standards
- A. exaggerate the inequality of living standards
- B. could exaggerate or understate the inequality of living standards depending on whether the transitory shocks are positive or negative
- C. understate the inequality of living standards
- D. accurately represent the true inequality of living standards
Explanation
Annual income includes temporary shocks and reflects different stages of the life cycle, while living standards are better related to permanent income or lifetime resources. These temporary lows and highs make measured income inequality appear greater than underlying inequality in living standards.
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