addressing income and wealth inequality chapter 14

Question 1

wealth

Answer 1

a stock of assets that has been built up. they provide security and sometimes an income for the future

Question 2

income

Answer 2

reward for the services of a factor of production

Question 3

forms of income

Answer 3

rent, interest, profits, wages, salaries and bonuses

Question 4

what does wealth provide

Answer 4

they provide security and sometimes an income for the future

Question 5

Gini coefficient

Answer 5

a numerical measure of income inequality in an economy

Question 6

what does it mean when the Gini coefficient is zero

Answer 6

the income distribution in an economy is equal. does not occur in the real world

Question 7

what does it mean when the Gini coefficient is one

Answer 7

it happens when all income accrues to just one person

Question 8

value of Gini coefficients in the real world

Answer 8

the norm is for Gini coefficient to be somewhere between the values of 0 and 1

Question 9

how does inequality of income and wealth affect an economy

Answer 9

inequality of income and wealth acts as a barrier to economic growth and development

Question 10

some reasons for inequality of income and wealth

Answer 10

low rate of savings, which holds back private and public sector investments
the inability of many people to obtain credit to fund small businesses and improved personal education

Question 11

informal economy

Answer 11

the part of the economy that is not regulated, protected or taxed by the government

Question 12

how can the government reduce inequality in the distribution of income and wealth

Answer 12

policies are used to reduce inequality in the distribution of income and wealth. there may be policies depend on funds generated from tax revenue for the implementation and regulation

Question 13

problem with tax collection in most low income countries and many middle income countries

Answer 13

the informal economy is huge with only a very small percentage of the population paying direct tax as opposed to indirect tax. corruption and tax evasion are also common. this hinders with the ability of governments to successfully implement policies that redistribute income and wealth

Question 14

tax evasion

Answer 14

where people deliberately do not pay tax

Question 15

minimum wage

Answer 15

the least amount an employer can legally pay one of its workers; it is usually expressed as a wage rate per hour. it is a rate before tax and any social security deductions are made. employers who do not pay the legal minimum wage rate can be fined or face other forms of penalty. it is a policy to redistribute income and wealth

Question 16

how does minimum wage rates help

Answer 16

it can reduce poverty in all economies

Question 17

what is the problem for most low income and lower middle income countries.

Answer 17

legislation might only apply to a minority of poorly paid workers because legislation would not have any impact in the large informal sectors that are prevalent in these economies. minimum wage rate has no relevance where workers are self employed or run small businesses staffed by family members

Question 18

what do critics think about minimum wage

Answer 18

that its the introduction that leads to unemployment

Question 19

transfer payments

Answer 19

a payment made by the government from tax revenue to certain members of the community who may be unable to work or are in need of assistance. payments are not made through the market so as no production takes place

Question 20

function of transfer payments

Answer 20

to provide a more equitable distribution of income

Question 21

examples of transfer payments

Answer 21

old age pensions
unemployment benefits
housing allowances

Question 22

how does tax affect transfer payments

Answer 22

The extent to which transfer payments can be paid is dependent on how much tax is collected and how many people have paid tax.

Question 23

effect of transfer payments on the market

Answer 23

Transfer payments result in less poverty and provide for a more equitable distribution of income. unemployment benefits and benefits to those on the lowest incomes can act as a disincentive to accepting work, so increasing the unemployment rate. As a consequence, output in the economy is less than it might be and there is a form of inefficiency

Question 24

progressive tax

Answer 24

one where the rate of taxation rises more than proportionately to the rise in income. way to reduce inequalities in wealth

Question 25

inheritance tax

Answer 25

progressive tax on an inheritance or gift. imposed to reduce wealth inequalities

Question 26

capital tax

Answer 26

a progressive tax paid annually on the difference between the buying and selling of an asset.

Question 27

consequence of progressive tax

Answer 27

disincentive to work and possibly even to live in a high taxation regime. For tax reasons, they may seek to move to a country that has a more favorable tax regime.

Question 28

state provision of essential goods and services

Answer 28

way of reducing inequalities in society is for the government to provide certain important goods and services, often free of charge to the user. financed through the tax system. If the goods and services are used equally by all citizens, then those on lowest incomes gain most as a percentage of their income. Inequality is therefore lowered.