THEME 4

• What is absolute poverty?

  When individuals do not have the resources to be able to consume sufficient necessities to survive.
• what is relative poverty?

  Poverty which is defined relative to existing living standards for the average individual example (in the EU households with less than 60% of the median are said to be an absolute poverty).
• how is absolute poverty measured?

  using the poverty line which is the minimum income needed per day to avoid absolute poverty.
• what is the current World Bank poverty line set at?

  $1.90 per day
• describe the trend in global absolute poverty?

  decreases overtime due to rising economic growth
• describe the trend and relative poverty in the UK?

  hasn’t been improved constant. 1/5 of people in the UK are in relative poverty.
• State the causes of increases and decreases in poverty.

  • higher rates of economic growth
  • lack of human capital
  • increase in trade
  • reduction in tax rates
  • reductions in benefits
  • Increase in foreign direct investment
• What does higher economic growth lead to in poverty?

  High economic growth -> higher real GDP per capita ->high incomes -> higher living standards -> decline in absolute poverty
• How does the lack of human capital lead to poverty?

  Lack of human capital -> low skills and productivity -> lower MRP -> lower wages -> higher chance of poverty

  lack of human capital -> occupational immobility -> increased risk of structural unemployment -> higher chance of poverty
• How does an increase in trade reduce poverty?

  Lower income tax -> to higher disposable income ->reduce chance of poverty.

  lower indirect taxes-> lower prices -> reduce chance of poverty
• How does a reduction in benefits lead to poverty?

  Lower benefits -> lower income for low income households -> greater poverty
• what is an example of reduction and benefits?

  UK has cut universal credit by £20 a week
• what is an example of reduction in tax rates?

  UK have cut income for lowest income earners
• what is foreign direct investments?

  investment in one country by a firm based in another country
• What does an increase in foreign direct investments lead to lower poverty?


  Foreign direct investment -> more job opportunity -> higher income -> less poverty
• what is an example of foreign direct investments?

  The largest Samsung phone factory in Vietnam employees over 100,000 people making the largest employer in the country
• What is income?

  A flow of money per time period to an individual such as dividends, profit, wages and interest
• What is wealth?

  A stock of assets such as savings, property and shares
• What is income inequality?

  Disparity in the distribution of income between households
• What is wealth inequality?

  Disparity in the distribution of wealth between households
• What is gini coefficient?


  Area of A/ Area of A+B
• What is gini index?

  Gini coefficient * 100
• What are countries with a high coefficient?

  • South Africa
  • Brazil
  • Zambia
• What are countries with low gini coefficients?

  Norway, Denmark, Japan
• Which of the poverty causes are most likely to have a short term impact?

  Changes in benefits and taxes will immediately impact earnings
• Which of the poverty factors are more likely to have a long term impact?

  Changes in education will take a long time to impact productivity and earnings
• State causes of inequality?

  • Unequal access to education
  • Low minimum wage
  • Weak trade union(due to government regulation)
  • Low benefits and pensions
  • Unemployment
  • Regressive tax system
  • Unequal asset ownership
• How can economic growth in developing countries lead to an increase in inequality?


  Unequal distribution of wealth. Only some individuals benefit from higher paid jobs in the secondary/ tertiary sector which are more available in the city centre.
• How can economic growth in more developed countries lead to reductions in inequality?

  Governments begin to implement policies e.g unemployment benefits that reduce inequality. There are more higher paid jobs in the secondary/tertiary sector job is more available across the country.
• What are examples of countries that fit the kunetz curve?


  Japan, South Korea, and Singapore.
• What are examples of countries that don’t fit the kunetz curve?

  India, Brazil and Ghana
• What are reasons why some level of inequality may be beneficial for an economy?

  -Inequality is needed to provide an incentive for entrepreneurs to start a business.

  • The existence of private business leads to unequal distribution of assets.
  • Inequality is an inevitable result of labour markets. (increasing productivity -> higher pay)
• What are evaluation points on why some level of inequality may be beneficial for an economy?

  —Some countries are a lot more unequal than others.

  • Government policy e.g benefits and minimum wage can reduce inequality.
  • Capitalism has contributed towards reducing absolute poverty and therefore partially reducing global inequality.
• Why will there be a degree of wealth inequality?


  Property and businesses are privately owned
• Why will there be a degree of income inequality?

  Workers with more skills (higher MRP) will be more productive. As firms are motivated by profits they will be willing to pay higher wages for these workers which leads to greater income inequality.
• What is regressive tax?


  A regressive tax is a tax that takes a larger percentage of income from low-income individuals compared to high-income individuals.
• What does a high gini coefficient indicate?


  high unequal distribution of income and high levels of inequality
• Illustrate the lorenz curve?


  The further the lorenz curve is from the line of equality the larger the area A compared to A+B increasing the Gini coefficient.
• What is economic development?


  The process of improving people’s well-being and quality of life.
• What are measures of development?

  • Human development index (HDI)
  • Inequality adjusted human development index (IDHI)
  • Multi-dimensional poverty index
  • Other measures (% of the population with access to clean water)