3.6 Inequality and Redistribution

Question 1

What is the difference between absolute and relative poverty?

Answer 1

Relative applies to those who don’t have enough income to participate fully within society. Absolute means not having enough to buy the basic necessities needed to survive

Question 2

What is the national measure for inequality

Answer 2

The poverty line which defines as 60% of the median UK household income (e.g. if the median is £100,000), They only earn £60,000) Less than 60%, they are classified as poor.

Question 3

Does the UK have many children in poverty?

Answer 3

Yes. Proportionate to their population, the UK have many children in poverty compared to other rich countries.

Question 4

How do the World Bank measure poverty?

Answer 4

Extreme poverty is measured as living on $1.25 a day or less. In 2015, that included 1 billion people.

Question 5

What is the multidimensional poverty index?

Answer 5

it measures poverty based upon 10 factors which include water, sanitation, health and education, alongside income

Question 6

What is the Gini coefficient?

Answer 6

Numerical representation of the inequality found by the Lorenz Curve. (Area A/Area A + Area B) The answer will be between 0 and 1

Question 7

What are 0 and 1 on the Gini coefficient?

Answer 7

0 is complete equality (money is equally shared to everyone)

1 is complete inequality (one person has all the money, everyone else has none)

Question 8

Define economic growth

Answer 8

The rate of growth of GDP. The economy may be growing but still have many in poverty

Question 9

Define economic development

Answer 9

Refers to not just the growth of income but to quality of life.

Question 10

What issues may prevent economic development

Answer 10

• Education will take time to implement
• Governments may not provide welfare benefits
• Tax collection methods may be poor

Question 11

What is the difference between bilateral and multilateral aid?

Answer 11

Bilateral aid is from an individual country to emerging economies whereas multilateral aid is where international organisations give aid to emerging economies such as the world bank

Question 12

What’s an NGO

Answer 12

Non-governmental organisation

Water aid, or other charities are given money to help fund projects

Question 13

What are the 3 main ways developed countries give aid

Answer 13

• Funding infrastructural development
• Improving welfare (anti-malaria kits)
• Natural disaster help

Question 14

What are the controversial arguments to giving foreign aid?

Answer 14

• Many ask governments to ‘take care of their own’

- a lot of aid has gone to waste due to specific needs not being made

Question 15

Why is aid good?

Answer 15

• Provides technical know-how to make themselves more productive
• Aid saves lives
• Increased global economic growth

Question 16

What are the drawbacks to individuals/ families of poverty

Answer 16

• Poor quality housing
• Increased illness/ lower life expectancy
• Limited access to education
• Poor attitude towards life

Question 17

What are the drawbacks to society of poverty

Answer 17

• Loss of output
• Expensive benefits
• Social problems; teenage pregnancy, drugs, crime
• NHS stretched

Question 18

What are the drawbacks to businesses of poverty

Answer 18

• Less demand due to low disposable income

- Luxury businesses may lose sales

Question 19

What are the benefits of poverty to businesses

Answer 19

• Targeted businesses (Poundland) may do well

- Labour intensive production companies may benefit from low wages paid to the those in poverty

Question 20

What impacts can a higher pay bring?

Answer 20

• Motivated workers, efficiency is improved
• Less waste/absenteeism - lower costs
• Quality of service improved

Question 21

A decreasing inequality (more equality) what does this mean in a nutshell for the economy

Answer 21

Growth rate increases

Question 22

What 3 ways can income be re-distributed?

Answer 22

• Foreign aid
• FDI
• Tax and benefits

Question 23

What’s the difference between income and wealth

Answer 23

Income is the payment for labour and is a flow over a period of time. Whereas, wealth is a stock value based on the monetary value of the assets of a person

Question 24

Define the poverty trap

Answer 24

The situation when someone would be poorer or not much richer even if they had a job due to decreased benefits.

Question 25

Name 3 policies that could be implemented to solve the issues with the poverty trap and say what issues they have

Answer 25

• Reducing benefits so more people have to work. However, jobs are hard to find
• Increase the minimum wage. However, unemployment may occur, costs would increase for employers and become less competitive
• Capping maximum benefits. May push families into real hardship.

Question 26

What are direct and indirect taxation

Answer 26

Direct is the tax you pay on what you earn (corporate, income)

Indirect is tax you pay on what you spend/use (VAT, car)

Question 27

What are the main functions of tax

Answer 27

• Government revenue needed to pay for many services such as healthcare, education, benefits
• If a progressive system, those who earn more, pay more tax and redistributes income