Macroeconomics - L12 Equity

Question 1

Define ‘income’

Answer 1

All current receipts, whether monetary or in kind, that are received by the household or by individual members of the household, and which are available for, or intended to support, current consumption.

Question 2

List 5 examples of income

Answer 2

1. Wages
2. Salaries
3. Business Profits
4. Investment Returns
5. Royalties
6. Government pensions and allowances
7. Cash transfers eg. child support payments

Question 3

Define ‘wealth’

Answer 3

Wealth is derived from assets or items of value owned or accumulated by individuals, businesses and governments.

Question 4

Provide 3 examples of assets from which wealth can be derived.

Answer 4

1. Property
2. Shares
3. Savings
4. Equipment
5. Machinery
6. Public infrastructure

Question 5

Factor income can be earned or unearned.
What is ‘earned’ factor income?

Answer 5

Earned factor income represents reward to individuals for their direct or ‘physical’ contribution to the production process (e.g. wages & salaries)

Question 6

Factor income can be earned or unearned.
What is ‘unearned’ factor income?

Answer 6

Unearned factor income represents a reward for providing resources other than labour (e.g. dividends)

Question 7

What is transfer income?

Answer 7

Income that is transferred from one group to another, usually via the government eg. pensions and unemployment benefits. No productive service has been provided in return for the payment of this income.

Question 8

Define ‘disposable income’

Answer 8

The total income that households have received in exchange for their participation in the production process (gross income), plus government transfers, less direct (income taxes).

Question 9

Define ‘poverty’

Answer 9

Poverty refers to people living in a situation where they have insufficient means to adequately provide for themselves.

Question 10

Define ‘absolute poverty’

Answer 10

Absolute poverty occurs when there is insufficient income to purchase basic necessities such as food, clothing, shelter.

Question 11

Define ‘relative poverty’

Answer 11

Relative poverty occurs in situations where there is a low level of income compared to others in society or compared to a generally agreed standard.

Question 12

What is ‘equitable income distribution’?

Answer 12

The redistribution of tax revenue by the government in the form of welfare payments to low-income earners and unemployed people.

Question 13

When it comes to income distribution, the government’s goal is equity (fairness) rather than equality (evenness/sameness).

How does the government achieve this?

Answer 13

This is achieved by providing support to sectors of the community such as those who are unemployed, raising a family or retired.

Eg. unempoyment benefits, family tax benefits or retirement pension.

Question 14

What 3 goals does the government aim to achieve through the equitable distribution of income?

Answer 14

To ensure all Australians have sufficient income to purchase the goods and services which enable them to have a dignified standard of living.

To ensure that no person/household experiences absolute poverty.

To ensure that huge or obscene inequalities in incomes are avoided such that the social and economic costs of inequality do not exceed the benefits.

Question 15

List two social costs and two economic costs of income inequality.

Question 16

List two social benefits and two economic benefits of income inequality.