Inequality

Question 1

Equality

Answer 1

The Sam or similar economic outcomes for different groups or individuals

Question 2

How is household income generated?

Answer 2

Payments received from rent, wages, interest and profit

Question 3

Economic inequality

Answer 3

Unequal distribution of income and of wealth

Question 4

Measuring economic inequality

Answer 4

Lorenz curve
The degree of income inequality can be measured through the Gini coefficient

Gini coefficient= area A / area A + B

Question 5

Poverty

Answer 5

Refers to the inability to cover minimal consumption needs

Question 6

Two types of poverty

Answer 6

Absolute poverty
Relative poverty

Question 7

Measuring poverty

Answer 7

To measure absolute poverty a minimum income level called the poverty line is identified. That is the basic minimum that families need to get by. Once the poverty line is defined, the amount of poverty can be measured by taking the % of the population, who earn an income below the poverty line. These thresholds are in purchasing power parity dollars in order to take account of differing costs of living between countries

Question 8

Multidimensional poverty index

Answer 8

It determines poverty beyond measures that are only based on incomes. It has three dimensions: education, health and living standards. If an individual is deprived from three or more of these ten indicators, they are considered as MPI poor and their poverty is calculated by the degree of deprivations they are experienced.

Question 9

Difficulties in measuring poverty

Answer 9

1. Poverty is difficult to measure bc of a lack of common definition
2. Surveys may be conducted on an irregular basis. Or the data may be insufficient
3. Household poverty surveys frequently omit from the sampling people who many be likely to be poor who do not live in household
4. There are also limits to the disaggregation of data in relation to gender, disability and age
5. Poverty lines underestimate the actual severity and intensity of poverty as poverty lines tend to provide no more than arbitrary cut off points that no specific relevance to the lives of the poor

Question 10

Causes of economic inequality and poverty

Answer 10

1. Inequality of opportunity (parental background, place they were born, gender)
2. Different levels of resource ownership
3. Different levels of human capital
4. Discrimination
5. Unequal status and power
6. Government tax and benefits policies
7. Globalisation and technological change
8. Market based supply side policies (lower minimum wages, lower labour union)

Question 11

Impact of income and wealth inequality on economic growth

Answer 11

• inequality lowers growth by depriving the ability of lower income households to access healthcare and education and to accumulate human capital
• savings may be low so the level of investment is low
• inequality encourages rent-seeking behaviours—> diverting resources from productive purposes
• lack of access to credit —> lower investment
• inequality creates instability —> discouraging investment
• high inequality —> non- inclusive growth —> fragile growth

Question 12

Impacts on economic inequality and poverty on living and social stability

Answer 12

• high criminality
• damaged trust and social cohesion
• increasing support of populist policies
• increasing power of the rich
• fuelling conflicts and upheavals

Question 13

Progressive tax

Answer 13

A tax is progressive in higher income individuals as the pay proportionately more so that as income increases, % of income paid as taxes increases

Question 14

Proportional tax

Answer 14

If higher income individuals pay proportionately the same as that as income increases the % of income paid as taxes remains constant

Question 15

Regressive tax

Answer 15

A tax is regressive id higher income individuals pay proportionately less so that as income increases the % of income paid as taxes decreases.

Question 16

What do direct taxes include?

Answer 16

Personal income taxes
Corporate income taxes
Wealth taxes