Distribution of income

Question 1

what are the trends in distribution of income for the past 20 years?

Answer 1

the gini coefficient has increased from 0.3 to 0.33. Indicating worsening income inequality.

Question 2

what are the top 3 sources of income in Australia?

Answer 2

1. Salaries and wages (55%)
2. Transfer payments (14%)
3. Business profits (10%)

Question 3

What are the top 3 sources of wealth in Australia?

Answer 3

1. Property (57%)
2. Superannuation (18%)
3. Bank accounts (6%)

Question 4

What are the effects of macroeconomic policy on DOI

Answer 4

• Increase to the marginal tax rate for high income earners will improve income inequality
• Expansionary fiscal policy will likely worsen inequality as high income earners earn more from assets due to inflation
• Tightening monetary policy will worsen income inequality as higher income earners have more money saved in accounts that will accumulate more interest and low income earners borrow more

Question 5

What are the effects of microeconomic policy on DOI

Answer 5

• Labour market reforms such as the fair work act 2009 established a minimum wage and national employment standards
• implementation of WorkChoices in 2005 worsened income inequality through the decentralisation of labour market systems

Question 6

What are the economic benefits of income inequality?

Answer 6

1. Incentive effect - low income earners become more productive, increased entrepreneurship, etc.
2. Higher savings - there is a larger proportion of national income in savings which leads to decreased NFD

Question 7

What are the Economic costs of income inequality?

Answer 7

1. Reduction of total utility - There is less marginal utility for every additional unit of income
2. Reduction in consumption - low income earners have higher relative MPC/APC, leading to decreased consumption
3. Increased spending on transfer payments - strain on government expenditure due to more people needing welfare benefits