Chapter 4 - Poverty and Inequality

Question 1

Absolute poverty

Answer 1

Severe deprivation of basic human needs
Living on less than $1.90 per day
The more developed a country, the fewer people in absolute poverty

Question 2

Measurements of Absolute poverty

Answer 2

1. Income Based Approach - Based on consumption levels
   
   • Poverty Line
   • Basic Needs Approach
2. Cost of Basic Needs - cost of basket necessary for basic survival

Question 3

Relative poverty

Answer 3

Income falls below an average income threshold for the economy
Bottom end of the income scale
1/5 of peopelp in the UK live below the official poverty line - 14 million people

Question 4

Measurements of Relative poverty

Answer 4

1. Income Inequality Indices
   
   • Gini/Palma ratio
   • Higher values = higher inequality
2. Percentiles of income distribution
3. Subjective measures - surveys

Question 5

Economic growth (changing absolute and relative poverty)

Answer 5

Absolute falls as GDP rises, which leads to a fall in unemployment
Relative falls due to a fall in unemployment

Question 6

Education and training (changing absolute and relative poverty)

Answer 6

Leads to a fall in poverty

Question 7

Welfare benefits (chaning absolute and relative poverty)

Answer 7

They increase less than wages
An increase in the number of relative poor

Question 8

Taxes (changing absolute and relative poverty)

Answer 8

Regressive - take a higher % from low incomed people
- increased poverty

Question 9

Aid (changing absolute and relative poverty)

Answer 9

Assistance from developed to less developed countries
- Depends on how it is managed and distributed

Question 10

Income
Income inequality
- How to measure it?

Answer 10

Flow Concept
Inequality based on incomes from wages, rent and profit
- Measured using the Gini coefficient and Lorenz curve
- 0 = absolute equality; 1 = perfect inequality

Question 11

Wealth
Wealth inequality

Answer 11

Stock Concept
Inequality based on the value of tangible assets

Question 12

Causes of wealth and income inequality WITHIN countries

Answer 12

Wages - leads to greater savings
Wealth - through inheritance or savings
Chance - inherit wealth/chose right
Age - older workers will have higher wages due to expertise

Question 13

Causes of wealth and income inequality BETWEEN countries

Answer 13

Natural disasters
Discrimination

Question 14

Impact of inequality

Answer 14

Enterprise: incentive to create them
- EVAL: poverty trap
Incentives: incentive to work
- EVAL: already high inequality deincentivices workers
Savings ratio falls as inequality falls
- EVAL: consider IR
Education
Migration
Life expectancy falls as absolute poverty rises

Question 15

Significance of capitalism

Answer 15

Wage differentials
Equality is never achieved - done to encourage hard work and gain more
Excessive inequality causes problems with efficiency - a degree of inequality is necessary

Question 16

Kuznets curve

Answer 16

Shows economic growth tends to reduce inequality