Poverty and Policies + Gini, Lorenz

Unit 3, Macroeconomics

Gini coefficient

A measure of the degree of income inequality of a country that ranges from zero (perfect income equality) to one (perfect inequality). Diagrammatically it is the ratio of the area between the Lorenz curve and the diagonal over the area of the half-square.

Lorenz curve

A curve showing what cumulative percentage of the population owns what cumulative percentage of the total income in the economy. The further the curve is from the line of absolute equality (along the diagonal), the more unequal the distribution of income.

Human capital

Education, training, skills, experience and health embodied in the labour force of a country.

Market-based supply side policies

A set of policies based on well-functioning competitive markets in order to promote

long-term economic growth, shown by increases in long-run aggregate supply.

Poverty

Arises when the lack of material possessions (wealth) or income prevents an individual or a family from achieving a minimum satisfactory standard of living.

Poverty line

A level of income determined by a government or international body (such as the World Bank) that is just enough to ensure a family can satisfy minimum needs in terms of survival including food, clothing and housing.

Poverty trap/cycle

Any circular chain of events starting and ending in poverty—for example, low income leads to low savings, leads to low investment, leads to low growth, leads to low income.

Minimum income standards

A measure of poverty that is based on what is essential in order to achieve a minimum acceptable standard of living.

Composite indicator

An indicator (often a weighted index) that is built up of more than one economic variable / data point, for example, the HDI or MPI.

Multidimensional Poverty Index (MPI)

An international measure of poverty covering over 100 of the economically least developed countries. It complements traditional income-based poverty measures by capturing the deprivations that each person faces at the same time with respect to education, health and living standards

Relative poverty

A comparative measure of poverty according to which income levels do not allow people to reach a standard of living that is typical of the society in which they live. It is defined as a percentage of society’s median income.

Absolute poverty

People living below the minimum income necessary to satisfy basic physical needs (food, clothing, and shelter); as of October 2015, the World Bank international poverty line is set at US$1.90 PPP per day.

Income

A flow of earnings from using factors of production to produce goods and services. Wages and salaries are the factor reward to labour and interest is the flow of income for the ownership of capital.

Transfer payments

Payments made by the government to vulnerable groups in a society, including older people, low income people, unemployed and many more. The objective is to transfer money from taxpayers to those who cannot work, to prevent them from falling into poverty

Human capital

The education, training, skills, experience and good health embodied in the labour force of a country.

Unemployment benefits

Payments, usually made by the government, to people who are unemployed (and actively seeking employment).

Universal basic income

A regular cash payment given to all persons in an economy that is independent of any other source of income they may have. It is intended to reduce poverty and income inequality.

Market-based supply side policies

A set of policies based on well-functioning competitive markets in order to promote long-term economic growth, shown by increases in long-run aggregate supply.

Purchasing power parity (PPP)

A method used to make the buying power of different currencies equal to the buying power of US$1. PPP exchange rates are used to make comparisons of income or output variables across countries while eliminating the influence of price level differences.