7.1

• Income definition

  Flow of money a person or household receives in a particular time period
• wealth definition

  the stock of everything that a person or household owns at a particular point in time which has value
• what is wealth inequality ?

  unequal distribution of assets
• examples of wealth

  house, shares, land, cars and saving
• examples of income

  could be from job, welfare payments, interest or dividends
• what are the links between income and wealth?

  • parts of income which is saved increases personal wealth
  • wealthy individuals/households can receive ‘investment income’ or unearned income which adds to their total income received (the wealthier you are, the more investment income)
• Who benefits from the virtuous circle and why?

  The wealthy - wealth increases income, which allows wealth to save, saving adds to wealth etc.
• who suffers from the vicious circle and why?

  the poor - low income means poor have to borrow, borrowing adds to personal debt, income is spent on debt repayment, consumption fails, and any wealth the poor possesses disappears
• vicious circle definition

  low incomes encourage borrowing which increases the debt of individuals, income go to pay off debt rather than be saved thereby reducing wealth
• Distribution of income definition

  How income is divided between rich and poor, or between different groups in society e.g age or gender bias
• distribution of wealth definition

  how wealth is divided between rich and poor, or between different groups in society e.g regional bias
• What can be used to measure other forms of income distribution ?

  1. Different regions
  2. Different generations
  3. Males and females
• mortgage definition

  long-term loan usually used to buy a house. the loan is secured against the value of the house
• what trends tend to be seen in full employment?

  • incomes of the rich grow faster than the poor
  • the wealth stock of the rich often increases faster than those of the poor
• in many developed nations (UK, Germany, France etc.) always been an unequal distribution of income and wealth
• in 2018 how much did the top fifth of UK households receive of total household income ?

  40%
• in 2018 how much did the bottom fifth of UK household receive of total household income?

  8%
• factors that influence the distribution of income

  1. factors of production
  2. distinction between earned and unearned income
  3. wage and salary differentials
  4. globalisation and international migration of workers
• labour‘s shares of worldwide incomes was 62% in the early 2000s, down from over 66% in the early 1990s
• What are the reasons why labours shares of worldwide incomes have decreased?

  • Technology replaces workers
  • Globalisation moves jobs to cheaper countries
  • Profits rise but wages stay flat
• what is earned income?

  includes wages, salaries, other forms of employee compensation and self-employment income
• what is unearned income?

  income derived from sources other than employment e.g interest and investment income
• The Office of National Statistics defines net total wealth as the sum of:

  1. Property wealth
  2. Financial wealth
  3. Private pension wealth
  4. Physical wealth
• high incomes lead to higher savings or expenditure on assets which increases the wealth stock of individuals
• factors influencing the distribution of wealth

  1. the ability to benefit from capital gains
  2. private pension assets
  3. inheritance and gifts
  4. wealth taxation and income taxation
• when does capital gain occur?

  when the value of an asset (e.g house) increases
• what are property and financial assets?

  • e.g shares
  • forms of marketable wealth
• what are private pension assets ?

  total value of all individuals pensions not provide by the government
• how much percentage of wealth do private pension assets account for?

  42.34% of total household wealth
• what can wealth be divided into ?

  new wealth and old wealth
• what is new wealth?

  wealth that has been recently acquired or generated, often through entrepreneurship or investment.
• what is old wealth?

  inherited wealth - passed down generations
• in the UK, a much larger fraction of the governments tax revenue comes from taxation of income than the taxation of wealth
• equality definition

  when everyone is treated exactly the same. a completely equal distribution of income means that everybody has the same income
• equity definition

  when everyone is treated fairly
• equity is a normative statement - cannot be tested
• equality is a positive statement - can be tested
• Lorenz curve definition

  A graph on which the cumulative percentage of total national income or wealth plotted against the cumulative percentage of wealth. The extent to which the curve dips below a 45° line indicated te degree of inequality of distribution
• Gini coefficient definition

  measure the extent to which the distribution of income or wealth among individuals or households within an economy deviates from a perfectly equal distribution
• if income distributed equally, the Lorenz curve would be a straight line