Chapter 4

Question 1

(GPT)

Answer 1

general purpose technologies: Major innovations are innovations that have applications in many fields and many products.

Question 2

creative destruction

Answer 2

New goods are developed, making old ones obsolete.

Question 3

The primary cause of the increase in wage inequality is the shift in demand for skill sets. Two possible reasons for this shift are

Answer 3

• The role of international trade. US firms that employ higher proportions of low-skill workers, the argument goes, are increasingly driven out of markets by imports from similar firms in low-wage countries.
• The other line of argument has focused on skill-biased technological progress. New machines and new methods of production, the argument goes, require more and more high-skill, high-education workers.

Question 4

measure of inequality.

Answer 4

Gini coefficient

Question 5

function Gini coefficient

Answer 5

A / (A+B)

Question 6

There are strong moral reasons to want to limit inequality, to achieve what is known as

Answer 6

inclusive growth

Question 7

There are also good political reasons for governments to do something against inequality

Answer 7

• To reduce inequality governments can try to reduce market income inequality, through better education, through minimum wages, and through rules about governance within firms.
• Or, given market income inequality, they can reduce disposable income inequality through progressive taxation, including the use of a negative income tax to increase revenue at the low end of the wage distribution, and through transfers such as food stamps and unemployment benefits.