Critical Reasoning

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.


Source: MGMAT
OA:C

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