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ECON 102 > module 7 > Flashcards

module 7 Flashcards

1
Q

what is economic growth

A

the growth rate of the real per capita GDP

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2
Q

what can GDP also be called a measure of

A
  • average real per capita income
  • since a way to measure GDP was by calculating total income
  • so GDP is also a measure of total income
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3
Q

how do you determine who to put in which quintile

A

depends on the variable you want to compare the people by

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4
Q

what does the lowest quintile represent

A

20% of the population with the smallest values

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5
Q

what does the highest quintile represent

A

20% of the population with the highest values

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5
Q

if you had data of age and expenditure for each person, how do you construct the quintiles if they are based on the age variable

A
  • sort the people by age (youngest to oldest)
  • divide them into 5 equal groups
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6
Q

if you had data of age and expenditure for each person, how do you construct the quintiles if they are based on the expenditure variable

A
  • sort the people by expenditure (least to most)
  • divide them into 5 equal groups
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7
Q

what are deciles

A
  • when you divide the population by 10 equal groups
  • Ex. bottom income decile = 10% of the population with the lowest incomes
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8
Q

what are percentiles

A
  • when you divide the population by 100 equal groups
  • Ex. top percentile is the 1% of the population with the highest incomes
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9
Q

what is one way to analyze the income distribution

A

divide the population in quintiles based on income

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10
Q

how can you get a better picture of how total income is allocated in the population

A
  • create a histogram of income
  • if its skewed (especially to the right), then it means there is income inequality
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10
Q

why is looking at household income distribution still not perfect

A

because not all households are the same size

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11
Q

why would it be better to look at household income distribution than the distribution of income for each individual that is of working age

A
  • some of the low income individuals are students that only work a few hours per year
  • some are members of high income families who choose to be out of the labour force
  • its better because it includes the income of all members of the household
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12
Q

what does it mean if the difference between the average and median is increasing

A

means that the allocation is becoming more unequal

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12
Q

what is the median

A
  • the value that separates the population into 2 equal groups
  • 50% of the population have incomes higher than the median, and 50% have incomes lower than the median
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13
Q

why are the averages higher than the medians (usually)

A

because many individuals have very high incomes compared with the average Canadians

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13
Q

what happens to the average and median if the income of the richest individuals increase

A
  • the average increases
  • the median remains unaffected
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14
Q

how do you plot the lorenz curve

A
  • first need the share of total income by quintile
  • then need the cumulative share of household income:
    • Its the share of income of the 1st quintile (20% poorest), first 2 quintiles (40% poorest), first 3 (60% poorest), etc.
    • Because of rounding errors, the last value doesn’t equal 100% (but around 100%)
  • then plot the cumulative income share on the y axis and the cumulative households on the x axis
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15
Q

what is the gini coefficient

A

a measure based on the Lorenz curve

16
Q

how do you calculate the gini coefficient

A
  • the area between the perfect equality line and the Lorenz curve divided by the area below the equality line
  • Since the perfect equality line has a slope of 1, the base (run) = 1 (100%), and the height (rise) = 1 (100%)
  • The line makes a right angle triangle with the axes, so the area under the line is 0.5 (bh / 2 = (1)(1) / 2 = 0.5)
  • So the Gini coefficient is x2 the area between the equality line and the Lorenz curve
17
Q

how do you interpret the gini coefficient

A
  • If the Lorenz curve = the equality line, the coefficient = 0
  • higher coefficient = allocation is more unequal
18
Q

is the gini coefficient a perfect measure of income inequality

A
  • no
  • can’t expect one number to provide a complete picture of income allocation
  • Its a tool to compare inequalities, but doesn’t tell us everything about income distribution
19
Q

can you compare inequality across countries with the gini coefficient

A

yes but it has to come from the same source

20
Q

when is a household considered poor

A

if its income falls below the poverty line

21
Q

what are 2 measures of poverty statistics canada uses

A

the market basket measure & the low income measure

22
Q

what is the market basket measure (MBM)

A
  • The cost of a specific basket of goods and services representing a modest, basic standard of living
  • Includes the cost of food, clothing, shelter, transportation, and other items for a reference family
23
Q

how do you measure if a family is in poverty or not with the MBM

A
  • compare the MBM costs to the disposable income of families to determine if they fall below the poverty line or not
  • If a family can’t afford the “modest and basic standard of living”, then they are considered under the poverty line
24
Q

what is the low income measure (LIM)

A

Equal to half of the adjusted median household income (adjusted for household size)

25
Q

does poverty need to be related to inequality

A
  • no
  • Ex. Everyone can be poor, so there would be no inequality
  • Ex. the poorest person can afford the MBM, so no one is below the poverty line
  • But there can still be a large portion of the population that is much richer than the others
  • Treat poverty and inequality as 2 different issues that may or may not be related
26
Q

is there a relationship between real per capita GDP and inequality

A
  • We observe a negative relationship between the two, which means that richer countries are more equal on average
  • But this is only true on average since there is a lot of variation
  • Ex. the US is more unequal on average, even if its one of the richest countries
27
Q

is there a relationship between inequality and poverty

A
  • a weak one that shows that there are fewer poor in more equal countries on average
  • but the relationship isn’t true for many countries
28
Q

can growth resolve poverty

A
  • if it can, then government policies that promote growth should also help reduce poverty
  • there is a relationship for the bottom 10% of the income distribution that the higher GDP = higher average income
29
Q

what is the relationship between poverty and real per capita GDP using the proportion of the population below the poverty line

A
  • on average, the proportion of the population below the poverty line is lower for countries with higher real per capita GDP
  • but there is quite a bit of variation
  • the variation gets smaller as the average income increases
  • This means that the number of countries with the same average income and very different proportion of the poor gets smaller
  • The result does suggest that as real per capita GDP increases, the proportion of the poor becomes low and stable
30
Q

what are some sources of inequality

A
  • inequality in skills
  • inequality in how skills are valued
  • inequality in education
  • technological advances
  • value of education
30
Q

what is the inequality of skills

A
  • If there is a particular skill that is highly in demand, those who have it would be paid better than the average workers
  • Ex. skilled hockey players are drafted by teams from the NHL and will be paid much more than average hockey players
  • Ex. those with coding skills are in high demand, and will be paid much better than unskilled workers
  • This is a natural source of inequality that can’t really be controlled
30
Q

what is the inequality in how skills are valued

A
  • Depending on how society values products and services, some skills may result in higher income than others
  • Also depends on the demand and supply of those skills
  • If a skill is in high demand and more valued, it will be more valued
31
Q

what is the inequality in education

A
  • Assumed that higher education = higher income
  • More educated workers earn more
  • So inequality of education is likely to create income inequality
  • Education inequality across countries is also a source of income inequality in the world
  • So government policies that focus on reducing education inequality are likely to also reduce income inequality
32
Q

how does technological advances create inequality

A
  • Related to skills and education
  • Ex. advances in information technology increase the value of computer scientists without affecting the value of unskilled workers or other types of unrelated skilled workers
33
Q

how does the value of education affect inequality

A
  • Everything that affects the value of being educated will increase the impact of education inequality on income inequality
  • Ex. technological advances affect the value of some types of education
34
Q

what are possible channels of inequality that may have an effect of growth

A
  • Investment: Affects growth through its impact on the accumulation of capital goods (goods used to produce)
  • Education: Affects the productivity of workers
  • Taxation (for redistribution purposes): Effects incentives to work or produce
  • Political stability: Affects the incentive to invest
  • Level of criminality: Implies wasting resources to prevent it instead of producing goods
35
Q

in terms of mobility, which quintile does someone’s parents need to be in for them to have an almost equal change to be in any quintile

A

3rd

36
Q

what is a main advantage of living in a highly mobile economy

A

that everyone has an equal chance of being successful

37
Q

what would happen if there isnt mobility

A

poor families would remain poor for generations

38
Q

what are 2 important factors that affect mobility

A
  1. accessibility of education
  2. accessibility of healthcare
39
Q

how does the accessibility of education affect mobility

A

Children whose parents are poor have more chances to be in higher deciles if education is easily accessible

40
Q

how does the accessibility of health care affect mobility

A
  • Health has an impact on school performance
  • Having an accessible health system helps poor children to acquire a higher lev

ECON 102 (6 decks)

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