4.2 Poverty and inequality

Question 1

What is absolute poverty?

Answer 1

When people are unable to afford sufficient necessities to
maintain life.

Question 2

Link between economic developments and absolute poverty

Answer 2

the more developed a country, the fewer people in absolute poverty. In developed countries, the government tends to intervene to attempt to provide the necessities.

Question 3

The world bank definition

Answer 3

The World Bank defines anyone living on less than US$1.90 a day as living in absolute poverty.

Question 4

What is relative poverty?

Answer 4

Relative poverty is about people’s income compared to
others in their area. Someone is said to be in relative poverty if their income falls below an average income threshold for the economy; they are at the bottom end of
the income scale.

Question 5

poverty line

Answer 5

the minimum level of income deemed necessary to achieve an adequate standard of living in a given country.

Question 6

The poverty trap

Answer 6

The poverty trap affects people on low incomes, when
the tax and benefits system creates a disincentive to look for work or work for longer hours.

Question 7

What is poverty caused by

Answer 7

• Unemployment
• A lack of skills
• health problems
• income dependency.

Question 8

What is absolute poverty caused by?

Answer 8

Absolute poverty tends to fall as GDP increases, assuming that the state provides
support to those who are unable to benefit from a growing economy.

Question 9

causes of relative poverty

Answer 9

those on higher salaries
see larger income growth than those on lower salaries or changes in government
spending and taxation.

Question 10

why has relative poverty grown in the UK

Answer 10

• inequality in wages growth
• de-industrialisation
• underemployment
• decline of trade unions
• state benefits
• long term and structural unemployment

Question 11

what is income?

Answer 11

a flow of earnings

Question 12

what is wealth?

Answer 12

stock of asset

Question 13

income inequality

Answer 13

refers to the extent to which income is distributed in an uneven manner.

Question 14

wealth vs income

Answer 14

Wealth is likely to be more unequally distributed than income because assets that
make up wealth can be accumulated over time. People who are wealthy now can
generate an income from those assets and as long as income exceeds expenditure,
they are able to build up a stock of assets. This accumulation of wealth can occur over successive generations through inheritance

Question 15

What is the Lorenz curve

Answer 15

This shows the cumulative percentage of the population plotted against the cumulative percentage of income that those people have. A perfectly
equal society would have a straight line from corner to corner; the degree of the bend
away from that straight line indicates the degree of inequality.

Question 16

Gini coefficient

Answer 16

a measure of the way in which different groups of households receive differing shares of total household income.

Question 17

Causes of wealth and income inequality within countries

Answer 17

• wages
• wealth levels
• chance
• age

Question 18

causes of wealth and income inequality between countries

Answer 18

• wars
• droughts
• famines
• earthquakes

Question 19

Kuznets hypothesis

Answer 19

That as society develops and moves from agriculture
to industry, inequality increases as the wages of industrial workers rises faster than farmers. Then, wealth is redistributed through taxation and government spending and
so inequality falls.

Question 20

Piketty comaprison to Kuznets

Answer 20

discredited this theory by arguing that inequality rises as the country develops as the rate of return on capital grows, so the rich get richer and
inequality increases.

Question 21

Significance of capitalism on poverty

Answer 21

• wage differentials
• individuals also own resources so wealth differs.
• inequality is essential for capitalism to work.
• excessive inequality cause problems with efficiency and social justice.