Problem Of Poverty Flashcards
What is absolute poverty
When a household does not have sufficient income to sustain even a basic acceptable standard of living / meet basic needs
What is relative poverty
A level of household income that is considerably lower than the median level of income within a country
What is the official poverty line
An income level that is considered minimally sufficient to sustain a family in terms of food, housing, clothing, medical needs etc.
Main causes of absolute (extreme) poverty
Fast population growth
Severe savings gap
High levels of debt
High interest rates
Impact of high rates of extreme poverty and deep inequality
Low health
Low education
Vulnerability to loan sharks to families in debt
Threats to democracy and stable institutions
Limited technology
Consequences of high relative poverty (inequality) for economic growth
- self-perpetuating poverty cycle
- misallocation of scarce resources
- social and political unrest / tensions
Can inequality drive economic growth
- encourage competition and effort among workforce
- incentivises risk-taking behaviour by entrepreneurs and incentives to invest in education
- poor economies it helps to build up market demand for certain consumer goods that require a minimum purchasing power
How does high relative poverty (inequality) create social and political unrest / tensions
Increased pressure on state welfare systems.
Rise of the informal economy + high interest rate loans
How does high relative poverty (inequality) create a misallocation of scarce resources
Capital investment in society is skewed towards the preferences of the rich.
Low collateral - limits growth of entrepreneurship
