Chapter 7 : The distribution of income wealth : poverty and inequality

Question 1

What is income ?

Answer 1

Income is a flow of money.
Ex. wage

Question 2

What is wealth ?

Answer 2

Wealth is your stock of assets.
Ex. house or car

Question 3

What is FTSE100 ?

Answer 3

FTSE100 stands for the financial times stock exchange 100 index. It tracks the performance of the largest 100 UK companies as measured by the value of their shares.

Question 4

What is active income ?

Answer 4

Active income is income earned from something you are doing currently that allows you to receive income.
Ex. job

Question 5

What is passive income ?

Answer 5

Passive income is income earned from something your aren’t actively taking part in but you still receive income from.
Ex. AirBnb and dividends from stocks and shares

Question 6

What is a statistic that illustration an unequal distribution of income ?

Answer 6

The median CEO workers earns 113 times the full time median worker salary.

Question 7

What is the word for someone who has a lot of wealth ?

Answer 7

Oligarch

Question 8

What is a society where wealth is concentrated in the hands of small group of people called ?

Answer 8

Oligarchy

Question 9

What is the difference between salary and wages ?

Answer 9

A salary is paid monthly and unchanging and not linked to working hourly or overtime. Whereas wages are paid weekly and calculated according to an hourly rate. It can also vary with overtime working.

Question 10

What is a quintile ?

Answer 10

A quintile is an example of a of a quantile that has been divided into 5 equal size groups.

Question 11

What is a quantile ?

Answer 11

A quantile is a set of data divided into sub groups.

Question 12

What is a decile ?

Answer 12

A decile is a quantile divided into 10 equal groups.

Question 13

What is a percentile ?

Answer 13

A percentile is a quantile divided into 100 equal groups.

Question 14

What is a vigntile ?

Answer 14

A vigntile is a quantile divided into 20 equal groups.

Question 15

What is equity ?

Answer 15

Equity is when everyone is treated fairly.

Question 16

What is equality ?

Answer 16

Equality is when everyone is treated the exact same - everyone receives the same exact income.

Question 17

What is horizontal equity ?

Answer 17

It is when households with the same circumstances pay the same income tax and are eligible for the same welfare benefits.

Question 18

What is vertical equity ?

Answer 18

Vertical equity justifies taking money from the rich and giving it to the poor on the grounds that the poor need it and the rich don’t.

Question 19

What are transfer payments ?

Answer 19

Transfer payments are a payment of money for which goods or services are not received in exchange.

Question 20

What is the Lorenz Curve ?

Answer 20

The lorenz curve is used to measure inequality and the extent to which the distribution of income is equal or unequal.

Question 21

What is the Gini Coefficient ?

Answer 21

The Gini coefficient measures the extent to which the distribution of income or wealth is unequal among individuals or households.

Question 22

What is the trickle down theory ?

Answer 22

Trickle down theory is that decreasing the rich people’s taxes will lead to economic growth.

Question 23

What is universal credit?

Answer 23

A single monthly payment to people who are out of work or on a low income.

Question 24

What is tax credits?

Answer 24

A payment to people working on a low income that would top up their weekly/monthly income. Replaced by universal credit.

Question 25

What is the two child benefit cap?

Answer 25

This is a policy introduced in 2017 that limits the amount of universal credit for families within less than two children.

Question 26

What is the winter fuel allowance?

Answer 26

Anyone who qualifies for the state pension received an annual payment of up to £300 to help with energy bills.

Question 27

What are the main causes of poverty? Explain them.

Answer 27

- Energy prices skyrocketing - Food/petrol prices rising - Taxes up and wages stagnant - 2 child benefit cap - Ageing population - Unemployment - Disabilites - Low wages

Question 28

What are the main effects of poverty? Explain them.

Answer 28

- Educational deprivation - Health deprivation - Effect on communities

Question 29

What is fiscal drag?

Answer 29

Freezing tax thresholds increases people’s taxable income without tax rates increasing so more taxpayers are dragged into paying tax or into paying tax at a higher rate.

Question 30

What determines the size of fiscal drag?

Answer 30

- The rise of average earnings - The rate of inflation - Setting thresholds

Question 31

What is the earnings trap?

Answer 31

The earnings trap is when low waged individuals are in relative poverty. It affects people in employment on low rates of pay.

Question 32

What is the unemployment trap?

Answer 32

It affects people who are unemployed as well as the poor. Those who are unemployed choose unemployment because they decide they are better off out of work and living on benefits.

Question 33

What are the policies that influence the distribution of income and wealth to alleviate poverty? Explain them.

Answer 33

Progressive tax: This involves increasing the taxes of those with higher incomes and raising the tax threshold so that those with lower incomes aren't taxed until a certain amount. Welfare benefits: These are benefits such as universal credit used to help reduce poverty and means tested benefits can be used to help those who need it the most National minimum wage: This is the legal minimum wage employers are allowed to pay their workers. It prevents exploitation. Education and training: Improving both education and training standards will lead to an increase in MRP. This will then lead to less occupational immobility and unemployment. Reducing unemployment: Using different policies based on either supply or demand can help reduce unemployment. Promoting ‘Trickle down’ theory: Policies that are used to help promote economic growth lead to average incomes raising. This will create more incentive for individuals to become entrepreneurs which will lead to an increase in job opportunities. This could also lead to funding of merit goods and higher tax pay. This overall could lead to an increase in the living standards for the poor.

Question 34

What are the economic consequences of the policies used to alleviate poverty? Explain them.

Answer 34

Progressive tax: Welfare benefits: National minimum wage: Promoting ‘Trickle down’ theory : Education and training : Reducing unemployment: Promoting ‘Trickle down’ theory:

Question 35

What are the possible costs of income and wealth inequality? Explain them.

Answer 35

Social tensions Creating an 'underclass' Less economic growth

Question 36

What are the possible benefits of income and wealth inequality? Explain them.

Answer 36

Incentive effects Trickle down