Income Inequality (Micro/Macro effects)

Question 1

Name 3 micro causesof income inequality

Answer 1

1. Education
2. Age
3. Capital Intensive production
4. Technology
5. Flexible labor contracts
6. Inheritance (wealth)

Question 2

How is education a cause of income inequality

Answer 2

Due to people having the opportunity to have different classes of education, which could be better quality and improve their MRP more

Question 3

How is age a cause of income inequality

Answer 3

Older people are normally seen as more employable due to having a higher MRP. This leads to the youth being discriminated against and maybe tells us why youth unemployment(16-24) is at 11%

Question 4

How is flexible contracts a cause of income inequality

Answer 4

Flexible contracts are people who are working in the gig economy normally. Arising a lot of problems such as unpaid work, or no sense of job security, which could create income inequality.

Question 5

How is Technology a cause of income inequality

Answer 5

The automation of technology allows workers on higher MRP to raise it even further to earn higher wages, whilst workers with lower MRP could see them become redundant as technology can automate their role.

Question 6

Name 3 macro effects of income inequality

Answer 6

1.One sector dominance
2.Recession
3.Gloablisation
4.Gov policies/ corrupt government

Question 7

How is one sector dominance a cause of inequality

Answer 7

Due to how in booms and recovery, people in this sector see their wages go up whilst people in other sectors dont see the same results.

Question 8

How can you evaluate one sector dominance

Answer 8

Through the trickle-down effect, or through the multiplier effect.

Question 9

How is Globalisation a cause of income inequality

Answer 9

Due to the international market becoming ever so more interconnected. Leading to higher levels of competition and causing low skilled worker to be made redundant.

Question 10

How are Gov.policies/ Corrupt government a cause of income inequality

Answer 10

Due to how they smuggle this money and ultimately they are unable to spend it on policies to reduce inequality such as a progressive tax system, welfare payments, education, microfinance etc

Question 11

Name 3 Micro consequences of income inequality

Answer 11

1. Social costs e.g. crime, divorce rates etc.
2. Incentive to improve MRP
3. Risk-taking incentive to be an entrepreneur
4. Incentive to join the labor force

Question 12

Name 3 Macro consequences of income inequality

Answer 12

1. Gov Finances,
2. Living standards, worsen
3. Asset Bubbles & Indebtedness
4. Growth, (Negative)

Question 13

Why is Gov.Finances a consequence of income inequality

Answer 13

It causes a higher burden on them due to higher transfer payments and spending on social costs

Question 14

Why is Asset bubbles & Indebtness a consequence of income inequality

Answer 14

Those with high incomes will look for high yields putting their money into assets and the stock market. if this is not sustainable then this could lead to bubbles forming stock market property, and thus can cause financial sector instability.

Question 15

How is Growth a consequence of income inequality

Answer 15

Due to lower levels of growth, this reduces consumers purchasing power. Low-income households who have a high MPC will see lesser welfare and less growth in AD

Question 16

What an evaluation point to Growth being a consequence

Answer 16

Due to higher incentives to join the workforce. To increase MRP and also take risks and create a business. We could see short-run losses but long-run growth shifting LRAS

Question 17

Name 2 Micro policies to reduce income inequality

Answer 17

1. Minimum wage
2. Maximum wage (for high income earners)

Question 18

Name 3 Macro policies to reduce income inequality

Answer 18

1. Progressive Income Tax
2. GS on welfare (Transfer Payments)
3. GS on Education/Health
4. Universal Basic Income (UBI)