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Lecture #14 - Income Inequality

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Trends Theories Measurement Categorical Inequality What is happening to the US economy? How can we measure income inequality? Why does economic inequality occur? What is the importance of income inequality for a society? How can we reduce inequality? Trends of the Income Inequality in ...

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  • December 10, 2024
  • 16
  • 2024/2025
  • Class notes
  • Yeo hyub yoon
  • Lecture #14 - income inequality
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Economics Inequality


Questions

● What is happening to the US economy?
● How can we measure income inequality?
● Why does economic inequality occur?
● What is the importance of income inequality for a society?
● How can we reduce inequality?



Trends of the Income Inequality in the USA


Real GDP in the USA (1947-2023)

,Paradox?

The gap between productivity and a typical worker’s compensation has increased
dramatically since 1979

Productivity growth and hourly compensation growth, 1948-2019

,Real Wage vs. Nominal Wage

Americans’ paychecks are bigger than 40 years ago, but their purchasing power
has hardly budged




Purchasing power has stagnated!



Average annual wages over time, by wage group

, Theoretical Background

Does inequality help economic growth?

The 1970-80s in the US compared to Japan?



Neoclassical Theory- Loanable fund Theory

1. Loanable fund theory of the interest rate
- Sufficient saving is the required condition for investment and growth
- Big government squeezes private investment and growth

2. Keyne’s theory of saving and investment

In what sense, are the two theories different?



The role of inequality for saving and investment

Neoclassical loanable fund theory
↑ inequality → ↑ saving → ↑investment
↓ inequality → ↓ saving → ↓ investment

Keynes’ investment theory

Saving Investment

Because the larger investment, the larger GDP will be, which in turn raises the size of
saving



Relation between Investment and Saving

History of econ thoughts on the topic

“Treasury View” vs. Keynes

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