4.2.1 - Absolute and Relative Poverty

Question 1

Define Absolute Poverty

Answer 1

. When individuals are not able to consume sufficient necessities to maintain life.

. Individuals who are homeless or malnourished therefore suffer absolute poverty

. Correlated with economic development; In richer countries absolute poverty is low as governments provide resources

Question 2

Define Relative Poverty

Answer 2

. Always present in society unlike absolute poverty

. Refers to those who are at the bottom end of the scale.

. In the UK, relative poverty is the level of household income is considerably lower than the median levels of income (60% less than median household income)

Question 3

Measures of absolute and relative poverty

Answer 3

. Household’s 60% below average income (HBAI) is used by the UK government to measure relative poverty

. Measure of Absolute Poverty : ?

Question 4

Causes of Poverty

Answer 4

. Lack of Human Capital (education and training) means that workers are less employable, which means less income to spend on necessities which could lead to absolute poverty

. Lack of financial capital hits those who are retired. Poverty amongst old people is high because they have inadequate savings and cannot work

. Unemployment (* refer to type and causes of unemployment and how this contributes to poverty)

. Inflation and increased interest rates

Question 5

Causes of change in absolute and relative poverty

Answer 5

. Absolute poverty falls as GDP rises as wages and other earning increase. The government can also uses its national income to intervene by providing benefits to the poor or provide a well- funded retirement scheme to eliminate poverty in the elderly

. Relative poverty changes if the market mechanism alters relative income. These would push a larger number of individuals or households below a measure of relative poverty such as 60% of the median earnings.

Question 6

Consequences of high poverty

Answer 6

. Poverty can lead to increased poverty due to the cycle poverty. This is as people have limited resources to create opportunities from themselves and their family. For example, they cannot afford to send to kids to tuition, buy books, etc.

. Rise of the informal sector

. High risky interest rate loans

. Increased pressure on state welfare systems

. Limited access to healthcare and education

Question 7

Ways to reduce poverty

Answer 7

. Public spending in healthcare so that ill health does not prevent individuals from working

. Investment in better funded state pension schemes, which would reduce poverty in the elderly

. Invest in training and education, which would increase the human capital, which would increase the rate of employment