Macroeconomics 2.7 Income distribution and welfare Flashcards
What do inequalities in the distribution of income and wealth refer to?
The way in which the shares of income and wealth are held in the UK.
How are income and wealth inequalities often recorded?
In quintiles or fifths of the population.
What is the Lorenz curve used for?
To illustrate the distribution of income.
What is the Gini coefficient?
A measure used to assess income inequality.
What does a Gini coefficient of 0 indicate?
Perfect equality.
What does a Gini coefficient of 100 indicate?
One person has all of the income.
What is disposable income?
Income available to households after taxes and transfers.
What does the median household income indicate?
The standard of living of the ‘typical’ household.
What is the relationship between disposable incomes and their distribution?
Disposable incomes are not distributed equally.
What is the effect of the benefits system on relative poverty in the UK?
It provides a safety net for the poor.
What is absolute poverty?
A condition where household income is insufficient to maintain basic living standards.
What is relative poverty?
Poverty defined in relation to the economic status of other members of the society.
What is the headcount ratio?
The proportion of a population that is below the poverty line.
What is the international poverty line?
A threshold set to measure absolute poverty globally.
What is horizontal equity?
The equal treatment of individuals in the same circumstances.
Does horizontal equity always exist?
No, it does not always exist due to discrimination.
What is vertical equity?
The different treatment of individuals with different circumstances to promote equality.
What is fiscal drag?
When the government fails to increase tax thresholds to keep pace with inflation.
What is the poverty trap?
A situation where individuals find it difficult to escape poverty due to various barriers.
What is the unemployment trap?
When individuals do not have a job and rely solely on welfare benefits and that welfare benefits have a high replacement ratio.
What are the effects of unemployment on poverty?
Unemployed individuals often remain in relative poverty.
How do rising living costs affect low-income households?
They reduce purchasing power and can lead to ‘in-work’ poverty.
What is the relationship between income growth and absolute poverty?
When all incomes grow, absolute poverty falls.
What is the relationship between income growth and relative poverty?
Relative poverty only falls when lower incomes rise faster than average incomes.
What are the two main concepts of equity?
- Horizontal equity
- Vertical equity
What is the role of education and training in alleviating poverty?
Increasing spending on education and training can help reduce poverty by raising the productivity of labour and therefore potential earnings of households.
What is the most common measure of National Income?
GDP.
What does the Gini coefficient measure?
Income inequality.
What are the limitations of GDP as a measure of living standards?
Only measures output (tangible) and does not measure the intangible.
