The Distribution Of Wealth- Income And Inequality

Question 1

Income

Answer 1

Flow of money going to factors of production
Wages and saleries paid to people in work
Money paid to people recieving benefits - sate pension, tax credits
Profits flowing to businesses and corperations
Dividends distributed to. Shareholders
Retal income to theose who own and lease property
Interest paid to owners of capital who hold money in deposit accounts or who hold bonds

Question 2

Wealth

Answer 2

Stock concept
Can be held differently
Likely to be more unequal as those with wealth can use it to buy further assets and make investments

Question 3

Ways in which wealth can be held

Answer 3

Savings in commercial bank deposits
Ownership of shares issued by sticj market listed companies and equity stakes in private buisnesses
Ownership of property
Wealth held in corperate bonds and gov bonds
Wealth tied in private pension schoemes- life assurance schemes

Question 4

Lorenz curve

Answer 4

Visual interpretation of income/wealth of inequality
Closer to line of euqality (directlty through middle) more waul

Question 5

Gini coefficient

Answer 5

Condenses the entire income distribution for a country into a signle numebr 0-1
Higher the number, greater the degree of income inequality
Above 0.4 considered associated with pokilitical instablility and growning said tensions

Question 6

Gini cooefficient ewuation

Answer 6

Area a (area beneath line of equality and lorenz curve for ocuntry)/area b (rest of half area-area a

Question 7

Axis on lorenz curve

Answer 7

Cumulative % of income (y0
Housholds by income- wuintile distribution

Question 8

Main causes of income inequality in uk

Answer 8

Widening gap atm
Decrease full time employemnt in manuufactring
Decreasing trade unin membership (and strnegth)
Bonus culture- prevalent in finacnial and business seervices
Sharp increase in exec pay relative to median incomes
Regressive effect of indirect taxes- poorest 5th pay 23% income vat
Welfare benefist less geneorugs over time
Unaffordable housing to buy and rent, cost of livibg
Wealth inequality contributed to income inequalityu

Question 9

Causes wealth and income inequality between countries

Answer 9

Industrial revolution started in uk and spread to europe meant prosperity was higher
British colonial rule meant exploitation of countries and their resources,holding them back
Many countries held back by wars, droughts natural disasters
High debt levels for developing countries- further hampered their progress
Trade deal stended to favour mroe develiped countries further excerbating global inequality

Question 10

Kuznets ineequality curve

Answer 10

Gini coefficient y, per capita gni/ppp on x
Cruve peaks in between industrialisation and development of progresisve tax system and welfare state
Suggests inequality often increase during phase of rapid industrilaizsationa nd urbanisation- may come to a point where increasing welfare porvidison, progressive taxes, more balanced income grow across industries may lead to devrease in overall inequality

Question 11

Piketty theory on inequality

Answer 11

As a country develops, return on capital will increase to those owning resources,c asuing further ineqaulity

Question 12

Euqality

Answer 12

Equal distribution of wealth and income in society
Everyone same income

Question 13

Equity

Answer 13

Fairness
Acceptable distrbtion of income and wealth in society
Could db esubjective

Question 14

Horizontal equity

Answer 14

Treating peoole the same
Tax should be fair- equal treatmebt
People in same income group pay same level s of tax

Question 15

Verticle equity

Answer 15

Redistributioo of income through progressive tax

Question 16

Benefits of more equal distribution

Answer 16

Avoid social unrest, health issue-s mental association with ineaulity
Allows people to participate in sociiety enabling them to afford gands avoiding market failre
Monoply can exploit consumer with higher prices, thus regressive
Inheritance can lead to inequality of opportunity- result in further inequaltuty

Question 17

Benefit of more unequal distribution

Answer 17

Inequality motivates workers- learn new skills and work hard- higher wage relfetcs higher productivity in capitalist system
More productive econ leads to econ growth- generally higher living standards for all
Income redistribution and wage equity through gov initervention- inheritence tax means rich fmialies cannot keep entire wealth, state education eerone can access, reguklation for firms with monopoly power

Question 18

Absolute poverty

Answer 18

When a household does not have sufficient income to sustain even a basic acceptable standard of living to meet basic needs
Thresholds vary between devloping countries

Question 19

Extreme poverty measure

Answer 19

World bank % pop living on lesthan 1.90 dollars/day x ppp (purchaisng power parity

Question 20

Relative poverty

Answer 20

Level of household income that is considerably llower than the real median level of income within a country
Official uk relative poverty line- houshold disposable income less than 60% median income- 22% in 2023

Question 21

Official poverty line

Answer 21

Income level considered minimally sufficient to sustain a family in terms of food housing clothing medical needs

Question 22

Poverty trap

Answer 22

Occurs when tax and benefits system creates disincentive to work

Question 23

Main causes of absolute poeverty

Answer 23

Pop growing faster than gdp in low income ocuntries
Severe savings ga-p- unable to save
Absense basic gov public services
Effects of endemic corruption in gob and business
High levels of debt and high interest rate
Damaging effects civil wars and natural disaster
Lower employment rates bulnerable jobs and poveryty wages
Absence of basic property rights

Question 24

Consequences of extreme ppoverty for development

Answer 24

Low life expectancy and fewer years of healthy life expectancy
Low school enrolment rate as families cannot afford education- gender opp gap
Low access basic helath care
Vulnerable loan sharks (high interest rates) for families mires in debt
Limited access to technology
Threats to democracy
Low real spending powwer limiting size of domestic markets for consumer gs

Question 25

Causes relative poverty ul

Answer 25

Inequality in wage grown- austerity, low wage public sector, highest page jobs increased
Deindsurtailise- service sector poorly paid
Flexile labour market- undeemployed, part time
Decrease trade unions
Decrease state benefits, increased regressive tax

Question 26

Consequences high relative poverty for grotwh

Answer 26

Cause self perpetualtion povety cycle- limited access to healthcare and education
Misallocation of scarce resources- capital investment skewed towards preference of nation, low collaterol (assets aginat loans) limits growth entrepreneurs
Social and political tensions- increased pressure on state welfare systems
Increased informal econ and high interest rate loans

Question 27

Policies in developing countries

Answer 27

Gov might imporve human capital by making education more available
May try to diversify econ by stimulate econ gain and job creation - sri lanka develop tourism industry

Question 28

Spending on housing public services healthcare education

Answer 28

heps to provide equal opp for all
Ensures those on low incomes basic needs met- min standard of living

Question 29

Policies to decrease inequality

Answer 29

Increase marginal tax rates- progressive taxation
Increase statutory legal minimum wage
Icnrease relative level of welfare benefits
Increase employment rates
Subsisyd on energy bills, childcare
Rent controls to tackle unaffordable housing
Laws to tackle discrimination in labour amrket
Universal basic income- ubi0 everyone given basic income

Question 30

Min wage

Answer 30

Legal pay floor that all employers must pay to eligable workers
To be effective min wage must be set above free market level
Supply of labour will expand- more people are attracted to work

Question 31

For increase min wage

Answer 31

Imporve work incentive and icnrease labour productivity
Lifts people out of working poevrty which means reduce welfare spending- universla credit
Consumer spending increases as increased disposable income

Question 32

Against increased min wage

Answer 32

Wage price inflationary spiral- cost push
Real wage unemp
Job losses in labour market- outsourcing and autonomous
Decrease price compettveness ofr export businesses

Question 33

Rent controls

Answer 33

Keep rents lower
Below market price

Question 34

For rent controls

Answer 34

Making rent affordable for lower income younger people - increasing mobility
Realeases people to live on -greater discretionary income

Question 35

Against rent controls

Answer 35

Decrease supply of quantuty of rental housing- fall inconstruction of rental property
Unintended consequences dif in cost of implementation

Question 36

For increasing top marginal rate income tax

Answer 36

Increase tax rev to support welafre state
Decrease post tax income ineqality which can increase ad
Social equity- those who can should pay

Question 37

Against increasing top marginal rate income tax

Answer 37

Tax rev might fall- laffer curve trade for tax and rev- increase avoidance and evasion
Competiveness might make uk econ less attractive to high earners
Groeth incentives to top earner to work and invest falls

Question 38

Causes and effects of poverty in uk

Answer 38

Old age- lack of private pension and rely on state one
Unemployment- relian on benefits
Low wages- structural unemployment from lack of manufacturing, fractured service sector

Question 39

Effects of poverty in uk||

Answer 39

Education deprivation- age 3, 9 months behind, by 16 children on free school meals achieve 1.7 grades lower at gose
Health deprivation- children born in poorest areas of uk weigh on average 200 grams less at brith than those bron in richest areas, more likely chronic illness
Effect of poevrty on comunities- mising out on school trups holidays, increased crime

Question 40

Gini coefficient uk

Answer 40

0.35 2021
V high for developed countries

Question 41

Applications in inequality q

Answer 41

Evidence of mental health more issues in unequal countris
Failure of trickle down theory