Summary
Summary Macroeconomics(Theme 4) Poverty and inequality segment
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; 4.2 Poverty and Inequality J Similar wages - ( More',_; ; ,u~:.:,:,in::iu:,;.- ~ :.c.;;. - ® 1:/11 high equal
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Wage gap between Impact of
Undeveloped
' 3. I agricultural and
development economy
~ ' 4~ - - - - - - - ___ _ ) ~ lndustri\al workers
Capitalism and inequality:
Capitalism allows individuals to pursue their own goals. ~
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For firms this means profit maximisation. Thus, firms hire • Inequality Similar wages -
highly skilled labour, who demand high w ages, while low- rises ~ /L J low
\.skilled workers earn m uch less. This creates inequality. ~ Development
(R\ ihat:s;,e-:n;b;abs;,u;e;o;e;;y-;- - - ~ ''w;a~s::;;b~©
C ,~ ;h:t~~ediffe:n~e' \
~ I: relative poverty? I between wealth and I
1 1 income inequality?
I\ _ _ _ _ _ _ _ _ ___ _ __ , 11 1 II
1
.,....-==------...'.1 II I
Causes of changes in poverty: ' .,. ")J I I I
• High growth ➔ decreases absolute poverty due to ' I I I
creat ion of jobs l I I I
• High growth ➔ increases average income ➔ possible , / I I
increase in relative poverty - - - - - - - - ~ I I
• M ore FOi ➔ more jobs ➔ decreases absolute poverty Wealth = stock concept= I I
• More trade ➔ more jobs ➔ decreases absolute asset, e.g. house I
poverty Income= flow concept = tn'\
• Increased income tax ➔ reduces relat ive oovertv liquid money , __ ___ _ ~
-- - ------- -- ---- - -
' Draw and clearly label the Lorenz curve I
t:Si:g~x~°::a~o: "__"':_t:_the:'~· -®
'- ---------------- ~
..._ ______________ _
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