11. Income and Wealth

Question 1

What is Income?

Answer 1

Income is a flow of money going to factors of production.

Not the same as wealth

Question 2

Examples of Income?

Answer 2

1. Wages and salaries paid to people from their jobs
2. Money paid to people receiving welfare benefits such as the state pension and tax credits
3. Profits flowing to businesses and dividends distributed to shareholders
4. Rental income flowing to people who own and lease out property
5. Interest paid to those who hold money in deposit accounts or who own bonds etc.

Question 3

What is Wealth?

Answer 3

Wealth is a stock concept – it is a large amount of money or valuable possessions and can be held in different ways.

Question 4

Examples of Wealth?

Answer 4

1. Savings held in bank deposit accounts
2. Ownership of shares issued by listed companies and equity stakes in private businesses
3. The ownership of property
4. Wealth held in bonds
5. Wealth held in occupational pension schemes and life assurance schemes.

Question 5

What do we mean by Poverty?

Answer 5

According to the World Bank….

Poverty is hunger. Poverty is lack of shelter. Poverty is being sick and not being able to see a doctor. Poverty is not having access to school and not knowing how to read.
Poverty is not having a job, is fear for the future, living one day at a time. Poverty is losing a child to illness brought about by unclean water.
Poverty is powerlessness, lack of representation and freedom.
Poverty can be caused by lack of income, lack of wealth or both.

Question 6

How is the level of inequality of income and wealth

measured?

Answer 6

The share of national income going to different groups in society, the poorest 20% of households at the bottom of the income scale through to the richest 20%.

The proportion of all households who must live on an income below an official ‘poverty line’. For the UK and other European Union countries, the current poverty line is an annual income of less than 60% of median income. The median individual is in the middle of the income distribution.

Question 7

What is the relationship between income and wealth?

Answer 7

Obviously, consistently good income over time will help to generate wealth.

However, Wealth generates also income. for example if you have built up savings balances they ought to pay interest (although interest rates are low at the moment!).