Theme 3, 3.6 Inequality and Redistribution

Question 1

Define absolute poverty

Answer 1

Means severe deprivation which makes it a struggle to survive

Question 2

Define Relative Poverty

Answer 2

Means not being able to live the lifestyle which is normal for the society.

Question 3

Define Lorenz Curve

Answer 3

Is a visual indicator of inequality or incomes (or wealth), showing households ranked by income level plotted against cumulative share of total income (or wealth).

Question 4

Define Gini coefficient.

Answer 4

Measures inequality using the shape of the Lorenze curve. A more even distribution produces a lower coefficient. The coefficient will be a ratio between zero and one. Mathematical indicator.

Question 5

Define HDI

Answer 5

Human Development Index has become the most widely used measure for communicating a country’s development status. HDI is a broad measure of development, since it captures the level of per capita income but also incorporates measure of health ( lief expectancy) and education ( school enrolment and literacy rate).

Question 6

Define Non-Governmental Organisations (NGOs)

Answer 6

Many NGO’s are formed specifically to help developing countries. The emergency relief work of Medicins Sans Frontieres and the Red Cross, for example, saves lives and meets immediate needs at times of crisis. This is a valuable short term response for people who suddenly lose their homes and livelihoods. Oxfam and Save the Children similarly help in times of disaster but also target long term development, often working with local communities. Plan international, for example, places a heavy emphasis on education and working with children to promote long term development.Its ‘because I am a girl’ project has more than 500 local programmes and hopes to develop role models, leaders and heroines for the future.

Question 7

Define International Aid

Answer 7

International aid may come as a loan or a grant. It may be bilateral ( gov to gov) or multilateral (UN, World Bank or other agency to gov), or come from an NGO. All these profess to help those most in need.

Question 8

Define Dysfunctional Society

Answer 8

Is one without the shared values and code of conduct to function effectively in the pursuit of its objectives.

Question 9

Define Economic agents

Answer 9

An entity in economic activity. This activity can be buying, selling or producing goods and services and influencing markets. There are 4 main types of economic agents: households, businesses, governments and central banks.

Question 10

Define Stock

Answer 10

Stock measurements count something, such as wealth, at one specified time.

Question 11

Define Flow

Answer 11

Anything measured over a period of time, such as income, is measured as a flow.

Question 12

Define Tax evasion

Answer 12

Evasion means using illegal means and risking punishment.

Question 13

Define Tax avoidance

Answer 13

Avoidance is legal without always being ethical.

Question 14

Define Tax credits

Answer 14

Are paid to working families whose pay is low; it ensures that they are always better off working than they are when unemployed.

Question 15

What are the two measures of poverty?

Answer 15

1. Human Poverty Index (HPI)
2. Lorenz curve and Gini coefficient

Question 16

What is the difference between HPI-1 and HPI-2?

Answer 16

HPI-1 measures poverty in developing countries, HPI-2 measures poverty in developed countries.

Question 17

What 3 factors does the HPI take into account?

Answer 17

1. Life expectancy
2. Education
3. Ability of citizens to meet basic needs.

Question 18

How does the Lorenz curve differ from the line of perfect equality?

Answer 18

The line of perfect equality shows a utopian economy, whereas the Lorenz curve shows a realistic relationship of income distribution.

Question 19

What does the Gini coefficient show.

Answer 19

Gives this a numerical value showing the inequality in a country.

Question 20

Formula for Gini coefficient

Answer 20

Gini= A / (A+B)

Question 21

What does a value of 0 indicate in the Gini coefficient?

Answer 21

Perfect equality

Question 22

How does economic growth differ to economic development?

Answer 22

Economic growth refers to an increase in GDP, whereas the latter refers to an improvement in living standards and life expectancy.

Question 23

Which country has Africa received the most aid from?

Answer 23

China

Question 24

How can FDI help reduce poverty?

Answer 24

It creates employment in the area where the businesses are set up, thus providing citizens with more income.

Question 25

What are microfinance schemes ?

Answer 25

This involves borrowing small amounts of money to fund new enterprises.

Question 26

Who are the usual recipients of microloans?

Answer 26

People who don’t have a suitable credit score for a loan from the bank.

Question 27

How would inequality motivate workers?

Answer 27

It would encourage them to work harder, become more productive and gain a higher wage rate.

Question 28

How are monopolies linked to inequality?

Answer 28

Monopolies have the market power to exploit consumers by charging higher prices, thus increasing profits for big firms but leaving consumers with less income as a result.

Question 29

How can government intervention help reduce wealth inequality?

Answer 29

By changing inheritance taxes, the upper class keep less of their wealth, thus reducing the inequality gap.

Question 30

Give one social cost of inequality?

Answer 30

Social unrest

Question 31

Describe the difference between wealth and income

Answer 31

Wealth is a stock of assets, whereas income is money received on a periodic basis.

Question 32

What is the Poverty Trap?

Answer 32

A mechanism which forces people to remain in poverty.

Question 33

How could taxes become a poverty trap?

Answer 33

If income taxes are too high, workers may be demotivated to work longer hours as they know they’ll receive the same income once taxes are deducted.

Question 34

Describe a progressive tax

Answer 34

When the tax rate increases as income increases.

Question 35

How does negative income tax differ from conventional income tax?

Answer 35

Negative income tax is when a worker earns below a certain income level, so instead of paying taxes the government gives them money.