4.3.5 Poverty and Inequality in Developing Countries

Question 1

What is the difference between Growth and Development?

Answer 1

Development is an improvement in welfare and living standards. Growth is an increase in the productive capacity of the economy.

Question 2

How is development typically measured?

Answer 2

Human Development Index. Measured in:

• Health; Life expectancy at birth
• Education; Mean years of schooling
• GDP per capita

Question 3

What is the problem of HDI as a measure of development?

Answer 3

Ignores the following measures:

• proportion of people with access to clean water
• proportion of people employed in agriculture
• energy consumption per person
• proportion of households with Internet, and mobile phones per 1000

Question 4

What is the definition of absolute poverty?

Answer 4

When income is below a minimum level required to meet basic needs. Generally below 2 dollars a day.

Question 5

What are the causes of absolute poverty in LEDCs?

Answer 5

-Factors limiting growth and development. Same thing. E.g.
PPD
HIV/AIDS
Debt
Corruption
Natural disasters
War or Civil War
Savings Gap
No property rights

Question 6

Evaluation points for the causes of absolute poverty

Answer 6

• Problem of isolating most significant contributor to absolute poverty
• May only be short term if caused by natural disaster
• Problem of defining absolute poverty
• Prioritisation of factors and why

Question 7

How does reducing absolute poverty achieve development?

Answer 7

Improves life expectancy due to being able to afford healthcare, improves access to clean water and increases school enrolment and literacy due to being able to afford school fees

Question 8

Apart from reducing absolute poverty and its effects, what else is needed for development?

Answer 8

• Better wealth and income distribution
• micro credit schemes
• access to tech and mobile phones
• more democracy
• better infrastructure

Question 9

Evaluate the point that factors other than reducing absolute poverty are more important for development

Answer 9

• Other factors may only happen AFTER reduction in absolute poverty
• Development is impossible without a reduction in absolute poverty, some argue.

Question 10

What is relative poverty?

Answer 10

Being 60% below the median income. Not comparable between economies and subject to change over time.

Question 11

How to measure Inequality?

Answer 11

Using the Lorenz Curve

Question 12

Explain the Lorenz curve

Answer 12

Shows cumulative income plotted against percentage of households. The straighter the more equal distribution. The deeper the curve the more Inequal.

Question 13

What are the causes of inequality in Income?

Answer 13

• Education
• Hours Worked
• Non-workers
• Physical and Financial Wealth
• Household Competition
• Government Policy

Question 14

How is education a factor affecting inequality of income?

Answer 14

Educational attainment is a factor affecting income. Some people will have degrees, others wont. Those with degrees will be paid more usually

Question 15

How is the presence of ‘non-workers’ a cause of inequality of income?

Answer 15

Those that don’t work will receive lower/no incomes than those who work, so if people don’t work in an economy there will be inequality

Question 16

How is the presence of Physical and Financial wealth a factor affecting inequality of income?

Answer 16

Those with a lot of wealth will have higher incomes because of the interest from those assets

Question 17

How is household competition a factor affecting inequality of income?

Answer 17

-If 5 people live in a house and one works a high paying job, there will be lower income per person than if all 5 people had lower paying jobs.

Question 18

How is government policy a factor affecting inequality of income?

Answer 18

Governments can tax and redistribute wealth to reduce inequality of income

Question 19

What are the different kinds of wealth?

Answer 19

• Property Wealth
• Physical Wealth
• Financial Wealth
• Private Pension Wealth

Question 20

What is property wealth?

Answer 20

The value of houses and commercial property owned

Question 21

What is physical wealth?

Answer 21

The value of physical valuables apart from property like cars, laptops, art, etc.

Question 22

What is financial wealth?

Answer 22

The value of monetary assets like savings and stocks

Question 23

What is private pension wealth?

Answer 23

Money locked in a pension fund

Question 24

What are the causes of Wealth Inequality?

Answer 24

• Income Levels
• Wealth Levels
• Inheritance
• Chance

Question 25

How are income levels a determinant of wealth inequality?

Answer 25

-The higher an income is above cost of living, the more capable they will be of accruing wealth

Question 26

How are wealth levels a determinant of wealth inequality?

Answer 26

The more assets you have, the easier it is to get even more assets because it is not as risky to invest in high risk/high reward assets. Those with few assets will pick low risk/low reward.

Question 27

How is inheritance a determinant of wealth inequality?

Answer 27

It perpetuates inequality by giving all the wealth of previous rich generations to their children, while poor generations have nothing to give

Question 28

How is chance a determinant of wealth inequality?

Answer 28

There is a high level of random chance associated with the value of assets like house prices