3. Topics in income inequality and poverty The following table shows the inequal

Question

3. Topics in income inequality and poverty

The following table shows the inequality measure for various nations in 2011. The inequality measure is equal to the income of the richest 20% of the population divided by the income of the poorest 20%.

Nation

Inequality Measure

Source: “Human Development Report 2011,” http://hdr.undp.org/en/reports/global/hdr2011/.

Which of the following statements about the data presented in the previous table are correct? Check all that apply.

In the United States, the top group receives 8.5 times as much income as the bottom group.

Developing countries have greater income disparity than economically advanced countries.

Japan and Ethiopia have the most equal distribution of economic well-being.

South Africa and Brazil have the most equal distribution of economic well-being.

Several difficulties can arise when attempting to measure income inequality. For example, savings rates tend to vary predictably with a person's age.

Fill in the blanks:This generates measurement problems because poverty rate calculations do not take into account ................. (the economic life cycle,in-kind transfer, economic mobility, transitory versus permanent income)

The measurement of income inequality addresses the question of how often people move between income classes, known as economic mobility.

Which of the following is consistent with studies in economic mobility? Check all that apply.

“The rich” and “the poor” groups do not consist of the same families year after year.

The United States has very low intergenerational economic mobility.

Persistent poverty is less common than the poverty rate suggests.

Nation

Inequality Measure

Japan 3.4 Ethiopia 4.2 Germany 4.3 India 5.6 Russia 8.2 China 8.4 United Kingdom 7.2 United States 8.5 Nigeria 9.5 Mexico 14.4 Brazil 17.6 South Africa 20.2

Explanation / Answer

On the basis of data presented in the table, following statements are correct:

1. Correct

As the inequality measure is based on the ratio of income of the richest 20% of the population to the income of the poorest 20%. This implies that the higher ratio is the result of larger numerator or lower denominator. For United States, this inequality measure is 8.5 which implies that the income of top group is 8.5 times higher than the income of bottom 20%.

2. Incorrect

Developing countries have greater income disparity than economically advanced countries.

This statement is incorrect because the given data does not prove this. The result is mixed and nothing can be concluded from the same.

3. Correct

Japan and Ethiopia have the most equal distribution of economic well-being.

This is because out of the given countries, there inequality is the least.

4. Incorrect

South Africa and Brazil have the most equal distribution of economic well-being

This is an altogether false statement. South Africa and Brazil are at the higher end of inequality with the inequality varying between 17 and 20 %. These two countries have the most unequal distribution of economic well-being as the gap between top 20% and bottom 20% is enormous.

5. Incorrect

Savings has nothing to do with income inequality.

Fill in the blanks:

This generates measurement problems because poverty rate calculations do not take into account transitory vs permanent income

The following statements are consistent with the studies in economic mobility:

1. The rich” and “the poor” groups do not consist of the same families year after year.

This is true because even though the absolute number of rich or poor may remain the same over a period of time but within these groups there may occur changes in terms of the composition of these groups.

2. Persistent poverty is less common than the poverty rate suggests.

True.

3. The United States has very low intergenerational economic mobility.

This cannot be said for sure just on the basis of the given data and facts.

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