Kuznets curve

Question 1

AXES of the curve

Answer 1

inequality

income per capita

Question 2

the Kuznetsk curve

Answer 2

At low levels of development income per capita is low at Y resulting in a low level of inequality L. As the economy grows income per capita rises to Y1 which causes ineqauliyu to rise to L1.

This is because urbanisation creates an urban rural divide with high wage rates asset prices and profits in cities with low wage rates in the countryside.

The higher quintiles therefore begin to receive a higher proportion of the income and wealth of the country.

Higher economic growth causes higher tax revenues for the government; if they become more accountable they are likely to use redistivebustive policies to lower income inequality

As a result income per capita rises to Y2 but inequality falls to L resulting in a more even distrubitionn of income and wealth