Poverty and inequality

Question 1

What are the 2 main types of poverty?

Answer 1

• absolute poverty: the World Bank set international poverty lines at $1.25 at 2005 GDP measured at PPP in 2008
• relative poverty: when you are living below a certain income threshold in a particular country

Question 2

What are the main issues concerning relative poverty?

Answer 2

• it is highly subjective
• subject to change over time
• not comparable between countries

Question 3

What is the HPI?

Answer 3

• human poverty index
• composite measure of poverty
• splits into 2 measures, HPI-1 & HPI-2
• HPI-1 measures deprivation in worlds poorest countries
• 3 main elements to this index are:
  1. % of population expected to die before 40
  2. % of population who are illiterate
  3. % of children who are illiterate & % of population who cannot access safe water, healthcare
• 4 elements of HPI-2 are:
  1. % of population expected to die before 60
  2. % of adults lacking functional literacy skills
  3. % of population below income poverty line (50% of median adjusted household disposable income)
  4. % of those in long-term unemployment (>12months)

Question 4

What is the Lorenz curve?

Answer 4

• measures degree of inequality

- plots cumulative % of population against cumulative % of total income

Question 5

What is the Gini coefficient?

Answer 5

measure of the degree of inequality in a country

Question 6

What is the formula for the Gini coefficient?

Answer 6

• G = A/(A+B)

- to express as a % multiply by 100

Question 7

How may inequality itself be a constraint on growth and development?

Answer 7

• very poor have no collateral ∴unable to start own business
• absolute poor could remain high in countries where inequality is high
• those on low incomes will have low MPS, limiting funds for investment
• those on high incomes may engage in capital flight (transfer incomes to other countries)
• inequality may lead to higher crime rates

Question 8

What is the HDI?

Answer 8

• human development index
• 3 aspects: resources (measured by GDP in PPP$), knowledge (measured by mean expected years of schooling), life-span (measured by life expectancy

Question 9

How may government intervention help tackle inequality?

Answer 9

• benefits: income support, child, incapacity, working tax credit
• progressive direct taxes
• get rid of regressive indirect taxes such as VAT