Income Distribution

Question 1

Define::

Wealth

Answer 1

The current value of the assets a household has accumulated over time through savings ; financial investments business profits and inheritance

Question 2

Autralian Bureau of Statistics (ABS) definition of wealth

Answer 2

The difference between a households
assets and its liabilities.

Question 3

Define:

Household assets

Answer 3

Property, shares, savings and superannuation.

Question 4

Define:

(Household) liabilities

Answer 4

Mortgages, personal loans and
credit card debt.

Question 5

What is the Lorenz curve and what is it useful for?

Answer 5

Shows the percentage of income received by different sections of the population. Used to show the degree of income inequality in an economy. Plots the actual relationship between percentages of the population and the shares of income they receive.

Question 6

Describe:

The line of equality (Lorenz curve)

Answer 6

• If everybody received the same income the Lorenz Curve would be a straight, diagonal line, running from the origin to the top right of the diagram.
• The more the curve dips away from the line of equality the more uneven is the distribution of income.

Question 7

Define:

Gini coefficient

With formula

Answer 7

• A measure that indicates the degree of curvature or concavity of the line.
• Gini coefficient = area between Lorenz curve and line of equality ÷ entire area under line of equality.
• It is between 0 and 1. The closer the value is to 0, the greater the income equality; the closer the value is to 1, the greater the income inequality.

Question 8

Gross income

Answer 8

Income, after an allowance for transfers.

Question 9

Income tax

Answer 9

Tax on gross income

Question 10

Disposable income

Answer 10

The income that remains after payment of direct
tax

Question 11

Progressive taxation

Answer 11

People on higher incomes are taxed at a proportionately higher rate than people on low incomes.

Question 12

Social wage

& its effect on purchasing power.

Answer 12

The government provides a number of things at no or low cost to households, for example, government schooling, healthcare through Medicare, use of most roads, libraries etc.

The value of these products can be considered to be a form of social wage and in effect raises the purchasing power of peoples’ disposable incomes.

Question 13

Indirect taxes

& their effect on purchasing power.

Answer 13

• GST and excise duty.
• These taxes are levied when people spend money or undertake certain activities. These indirect taxes reduce the purchasing power of disposable incomes.

Question 14

Define:

HDI

Answer 14

Human development index, a combined score is given based on equal weighting of:

• Health (life expectancy)
• Wealth (GDP per capita)
• Education (literacy and years of schooling)

Question 15

HDI strengths

Answer 15

• Uses both social and economic data
• Information is updated annually and collected by a range of people

Question 16

HDI weaknesses

Answer 16

• Some say the wealth aspect still has too much importance in the HDI
• Too simple: may need more indicators to get a broader view of both non-material and material SOL.

Question 17

Define:

SPI

Answer 17

Social progress index.
Measures the extent to which countries provide for the social and environmental needs of the citizens

A combined score is given based on achievement within three dimensions (54 indicators):

• Basic needs for survival (food, water, shelter, safety)
• Foundations of Well-being: Building blocks to improve life (education, information, health and sustainable environment)
• Opportunity: Chance to pursue their goals and dreams and ambitions free from obstacles (rights, freedom of choice, freedom from discrimination and access to advanced knowledge — tertiary education)

Question 18

SPI strengths

Answer 18

Broad range of indicators used.

Question 19

SPI weaknesses

Answer 19

• Uses only social and environmental data (exclusion of economic data)
• Not all dimensions are incorporated e.g. measure of subjective life satisfaction