Summary Macroeconomics(Theme 4) Poverty and inequality segment

; 4.2 Poverty and Inequality J Similar wages - ( More


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Wage gap between Impact of
Undeveloped
' 3. I agricultural and
development economy

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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


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~ I: relative poverty? I between wealth and I
1 1 income inequality?
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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 , __ ___ _ ~


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' Draw and clearly label the Lorenz curve I
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