Inequality Flashcards
Income
Income is the flow of money received each year. It can include: a salary, renting out a property, interest earned on cash in the bank, benefit payments, dividends from shares etc.
What is income inequality?
Income inequality occurs when the best paid workers take home more income than the rest of a country’s workers. For example, the average American CEO was paid around 271 times more than the average worker in 2017.
What does the straight, 45° line in a Lorenz curve represent?
A perfectly equal distribution of income
Which of the following shows a likely impact of the introduction of a national minimum wage?
The introduction of a minimum wage will increase wage costs for a business. This will decrease their profits, which may mean that managers will receive a lower income. Poorer workers will receive a higher wage as a result of the minimum wage. The poor get richer and the rich get poorer and so there is a decrease in income inequality.
How will paying out social benefits like job-seekers allowance and pensions affect income equality?
Social benefits are paid to the poorest in society and so they help to make the poor richer. This will increase income equality.
How will an increase in progressive taxation affect income equality?
Progressive tax means that the rich pay a higher percentage of their income in tax and the poor pay a lower percentage of their income in tax. This makes the rich poorer and the poor richer and so it will increase income equality.
What does an income growth rate of 3.8% mean?
An income growth rate, g, of 3.8% means that the average income has increased by 3.8% a year.
On average, by what percentage does the wealth of rich people with assets increase by each year?
Wealth increases in value by r, the rate of return, which is approximately 5.3%.
On average, by what percentage do average incomes increase by each year?
Average incomes grow each year by g, the rate of growth, which is approximately 3.8%.
What is the likely impact of r, the rate of return, being larger than g, the rate of growth?
If r>g then rich people with assets will get wealthier at a higher rate than poor people with no assets.
What is the likely impact on wealth inequality if r>g
Rich people with assets will get wealthier at a higher rate than poor people with no assets. This will worsen wealth inequality.
Wealth Inequality
When assets are not shared equally between individuals
Assortative Mating
When rich, successful people marry other rich, successful people.
r > g Hypothesis
If r, the rate of return on wealth, is greater than g, the rate of income growth, then wealth will grow faster than incomes.
Sergey received a massive inheritance. What impact did the r>g hypothesis have ?
If r>g then rich people with assets will get wealthier at a higher rate than poor people with no assets. This will worsen wealth inequality. So, Sergey’s wealth is generating money at a much faster rate than Dmitry’s income is increasing.
