Distribution Of Income And Wealth

Question 1

Difference between income and wealth

Answer 1

Income is a flow
Wealth is a stock

Question 2

How is income measured by world bank

Answer 2

GNI

Question 3

How are countries categorised by world bank

Answer 3

Low, lower middle, upper middle and higher incom countries

Question 4

Factors influencing distribution of income

Answer 4

Factors of production
Distinction between earned and unearned income
Wage and salary differentiald
Globalisation/ migration

Question 5

Explain how factors of production influence distribution of income

Answer 5

E.g. owners of land (fop) receive high income
Labourers waves don’t rise as fast as productivity so share in national income is low
Owners of capital receive income in dividends

Question 6

Difference between earned an unearned income

Answer 6

Earned - wages, salaries
Unearned - interest, investment income

Question 7

Explain wage and salary differentials

Answer 7

Higher labour productivity
Qualification levels
E.g pilots and cleaners

Question 8

Figures of wealth in 2010-2012

Answer 8

Poorest owned 9% all together
Top fifth richest owned 62% all together

Question 9

Factors influencing distribution of wealth

Answer 9

Ability to benefit from capital gains
Private pension assets
Inheritance and luck
Wealth taxation versus taxation on income

Question 10

How does a capital gain occur

Answer 10

When the value of an asset increase
Share prices also rise in the long run

Question 11

When is complete equality achieved

Answer 11

When the distribution of income = everyone receives same amount of invomr

Question 12

Equity

Answer 12

When everybody is treated fairly

Question 13

Define the Lorenz curve

Answer 13

Graph on which the percentage of total national income is plotted against the percentage of population
The extent to which the curve sips indicates degree of inequality

Question 14

Draw the Lorenz curve

Answer 14

Page 126 book 2

Question 15

Gini coefficient

Answer 15

Measured the extent to which the distribution of income or wealth among individuals or households within an economy deviates from perfectly equal distrubution

Question 16

Gini coefficient formula

Answer 16

Area A / area a + area b

Question 17

Policies to alleviate inequality

Answer 17

Welfare benefit system
Fiscal drag - when govt fails to raise tax threshold inline with inflation
Minimum wages
Providing subsidised housing education training and healthcare

Question 18

Consequence of govt policy

Answer 18

Reducing incentive to work
Nay have adverse effects eg slow economic growth and loss of international competitiveness
Some fiscal measures has led to the development of poverty and unemployment trap

Question 19

The unemployment trap

Answer 19

Contains unwaged social security claimants who choose unemployment
They decide they are better off without work

Question 20

Progressive taxation

Answer 20

As income rises a great portion of income is paid in taxation

Question 21

Equality vs equity

Answer 21

Equality - everyone treated the same
Equity - everyone treated fairly