The Lorenz curve illustrates the degree of inequality in the distribution of income within a country.

• A. The level of unemployment
• B. The size of government expenditure
• C. The degree of inequality in the distribution of income within a country
• D. The rate of inflation

Answer: (D)

The Lorenz curve shows how evenly income is distributed across a population. It graphs the cumulative share of income on the vertical axis against the cumulative share of people on the horizontal axis. If everyone earned the same, the curve would lie on the 45-degree line of perfect equality. The more the curve bows away from that line, the greater the inequality. This makes the curve a direct illustration of how unequally income is distributed within a country, not measures of unemployment, total government spending, or the inflation rate. So the concept being tested is that the Lorenz curve depicts the degree of income distribution inequality within a country.