Notes for 3.4.8 Impact of income and wealth inequality - IB | RevisionDojo
3.4.8 Impact of income and wealth inequality Notes
Besides the undeniable personal impacts, income and wealth inequalities can affect factors such as:
Economic growth.
Standards of living.
Social stability.
Impact on economic growth
Researches have found that high income and wealth inequality typically lead to slower economic growth. Reasons for this can include:
Lower income households are not able to invest in human and physical capital, which reduces the long-term growth of the country as the production possibilities shrink due to less-skilled, less-productive people.
Additionally, high income inequality often leads to a high concentration of political power on a few hands. This politicalinfluence may result in policymakers taking decisions that do not prioritise economicgrowth, but rather personalinterests.
Impact on living standards
High income and wealth inequalities, usually correlate with low living standards. This is because:
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Questions
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Question 1
Recap question
Empirical studies often find a negative correlation (r<0) between income inequality and various social indicators. Which of the following indicators would you expect to improve (increase) as income inequality decreases?
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What is the correlation between income inequality and living standards?
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Note
Introduction to Income and Wealth Inequality
Income inequality refers to the uneven distribution of earnings among individuals or groups within a society. It is typically measured using metrics like the Gini coefficient or income percentiles.
Wealth inequality is the unequal distribution of assets and resources, such as property, stocks, and savings. It is often more pronounced than income inequality because wealth accumulates over time.
While income inequality focuses on earnings, wealth inequality encompasses all forms of financial assets, making it a broader measure of economic disparity.
Think of income as the money you earn from your job, while wealth is like a treasure chest that holds everything you own, including your house, car, and savings.
Keywords
Income inequality: The unequal distribution of earnings among individuals or groups.
Wealth inequality: The unequal distribution of assets and resources.
Gini coefficient: A measure of statistical dispersion representing income or wealth distribution.
