T4 POVERTY AND INEQUALITY Flashcards
What is absolute poverty
Value of poverty set by the world bank, below $2.15 per day
Being unable to afford basic necessities
what is relative poverty
Relative poverty is defined as earning less than a particular percentage of a country’s average income.
In the UK, this is less than 60% of average national income
What is ppp
purchasing power parity, tells us how much of one currency is needed to purchase a basket of goods compared to another currency.
what is relative poverty defined as in the uk
In the UK, relative poverty is defined as earning less than 60% of the UK average income
What are the 3 most important factors influencing poverty rates
infrastructure
education and training
aid
real world example for how infrastructure affects poverty rates
1970, new community movement in south korea, raw materials were provided to rural south korean villagers, allowing farmers to build roads and bridges, improving productivity, lowering production costs
and therefore lowering absolute poverty rates
real world example for how education and training affects poverty rates
GI bill of 1944,
provided veterans with access to higher education and vocational training
lowered absolute and relative poverty rates among veterans
real world example for how aid affects poverty rates
The marshall plan (1948-1952)
a U.S. initiative that provided $13 billion (over $150 billion in today’s money) in aid to Western European countries to rebuild their economies after WWII.
The aid helped countries like West Germany, France, and Italy rebuild industries, infrastructure, and agriculture.
Unemployment dropped as new jobs were created, lifting millions out of poverty.
Why may aid not always help to reduce poverty
Corruption
what is wealth inequality
is when wealth is shared unequally between a population.
what is income inequality
Income inequality occurs when the best paid workers take home more income than the rest of a country’s workers
example of income inequality in USA
average american ceo was paid 271x more than the average american construction worker
what does perfect income equality look like on a lorenz curve
straight line graph
x axis cumulative % of population
y axis cumulative % of income
What does income inequality look like on a lorenz curve
Income inequality produces a curve that stars off fairly flat (the poorest workers earn a small amount of income) and then gets steeper as the richest workers earn higher amounts of income.
(like an exponential graph)
x axis cumulative % of population
y axis cumulative % of income
How can increasing inequality be shown on a diagram?
A series of Lorenz curves which are getting further from a straight, upward sloping 45° line
What is the gini coefficient
The area between the perfect equality line and a countries inequality line, divided by the total area under the perfect equality ine
What does a large/increasing gini coefficient represent
Income inequality increases
what does a gini coefficient of 0 represent
perfect income equality
what does a gini coefficient of 1 represent
perfect income INequality
What is the lorenz curve
A graph to show income inequality.
The further a Lorenz curve is from the 45° line of perfect equality, the more unequal the economy is.
What is the definition of assets
is the stock of all your assets added up
What are the causes of changes in inequality
Minimum wage rates
Assortative mating
social benefits and tax
What effect will a progressive tax have on income inequality
Progressive tax means that the rich pay a higher percentage of their income in tax and the poor pay a lower percentage of their income in tax.
This will decrease income inequality.
What is meant by the R>G hyptothesis
rate of return on capital or r has historically been much
larger than g ( growth in incomes)
therefore the rich who own assets, become disproportionally richer to the increase in wages the average worker receives
What does an income growth rate of 3.8% mean?
The average income has increased by 3.8% a year
What are capitalists
people who own and use any of the factors of production in the hope of making profit
what is capitalism in economics
an economy full of capitalists
why are command economies considered to not be very capitalist
all factors of production are allocated by the government
why are mixed economies partially capitalist
are partially capitalist because some factors of production are allocated by the price mechanism and others are allocated by the government
why are free market economies very capitalist
are very capitalist because all factors of production are allocated by the price mechanism
What improvements does capitalism often lead to
Capitalism can lead to in improvement in the quality of the factors of production
Capitalism can encourage both investment and consumption in the economy
