4.2.2

Question 1

What are two types of Inequality?

Answer 1

Wealth and Income

Question 2

What is wealth?

Answer 2

The value of all assets that someone owns.

Question 3

When does wealth equality occur?

Answer 3

When everyone has the same value of assets.

Question 4

What is income?

Answer 4

The flow of money received per year.

Question 5

What is perfect income equality?

Answer 5

When everyone receives the exact same amount of income.

Question 6

What is Income Inequality?

Answer 6

Income inequality refers to the unequal distribution of income to households.

Question 7

What are two methods to measure income inequality?

Answer 7

Lorenz Curve and Gini Co efficient

Question 8

What are the two axis called on the Lorenz curve?

Answer 8

Cumulative percentage of income - Y
Cumulative Percentage of Population - X

Question 9

Where would you find Perfect Income equality on Lorenz Curve?

Answer 9

Perfect Income Equality is 45 degree line

Question 10

What is the Lorenz Curve?

Answer 10

Distrbution of income across countries population.

Question 11

What must you remember when drawing the Lorenz Curve?

Answer 11

You must plot the Lorenz Curve and Perfect equality line.

Question 12

What does it mean when the Lorenz curve is closer to the equality line?

Answer 12

More Equality

Question 13

What is the Gini Coefficent?

Answer 13

Measures the income inequality of a country.

Question 14

What is the formula for Gini Co efficient?

Answer 14

A/A+B

Question 15

What is A and B in the Gini cofficent?

Answer 15

On the lorenz curve the A is the area between the Equality Line and the Lorenz Curve.
B is the part Below the Lorenz Curve and the Prefect Inequality straight vertical line.

Question 16

The Gini Coefficient is a value between 0-1. What does it mean the higher the number?

Answer 16

The higher the number the more inequality, while the lower the number the more equality.

Question 17

What are 4 Factors influencing Inequality?

Answer 17

Minimum wage
Social Benefits
Taxes
Education

Question 18

What is Progressive Income Tax?

Answer 18

Tax rate increases the more you earn.

Question 19

What is Capitilism?

Answer 19

An economic system based on private ownership of production methods, with hope to generate a profit.

Question 20

Why does Capitalism Create Inequality?

Answer 20

Business owners decide their own salary, meaning they can pay themselves high wages compared to works (Business owners are profit driven)

Question 21

Why does Capitalism create wealth Inequality?

Answer 21

Assets are able to generate more income, while poor people do not have assets so they can not generate as much money as richer people.

Question 22

Why Is Inequality Good?

Answer 22

Inequality incentivise people to obtain higher paying jobs.

Productivity increases

Question 23

Why Is Inequality Bad?

Answer 23

Capitalism does not allow people to have savings, due to workers working long hours and having low pay.

Low incentive to spend with low Consumer Confidence -> Aggregate demand Decrease

Question 24

Why may the Trickle Down Effect not work?

Answer 24

Rich Capitalists may not spend their money.
This will cause a withdrawal from the circular flow of income
Causing there to be no trickle down affect through the lower working positions
This is means no Wealth Improvement

Eg - If rich do not buy a supercar, the production line jobs will not experience income being distributed as there is no need for supply when there is no demand.

Question 25

Why is inequality bad

Answer 25

Standard of living is bad
Government revenue is spent if welfare