3.3 - FAIR DISTRIBUTION OF INCOME

OCR

What is the definition of "distribution of income"?

How incomes are shared between individuals and households

What is the definition of income?

The reward for the service provided by a factor of production

What is the definition of wealth?

The market value of all the assets owned by a person, group or country at a specific point in time

State two types of income?

Wage/Rent

Analyse how a rise in household incomes would be likely to affect economic growth (6)

A rise in household incomes can significantly impact economic growth by increasing consumer spending and supporting business investment. Both factors contribute to boosting overall economic activity and output.

A rise in household incomes can have a significant positive impact on economic growth through increased consumer spending. When households have more disposable income, they are likely to spend more on goods and services, driving demand. For example, during periods of wage growth in the UK, such as after the 2008 financial crisis recovery, consumer spending increased, which helped stimulate growth in the retail and services sectors. This increase in demand encourages businesses to produce more, leading to higher output, more job creation, and further increases in income. As a result, the economy experiences growth as firms respond to the rise in demand by expanding their operations and hiring more workers, contributing to an increase in GDP.

In addition to boosting consumption, higher household incomes can also lead to greater savings and investment, which further supports economic growth. With more income, people are able to save more, and this increases the funds available for businesses to borrow and invest. For example, in countries like Germany, which has high household savings rates, businesses have greater access to capital for investments in new technologies and infrastructure. This investment can improve productivity and drive long-tterm-5erm economic growth. As firms become more productive, they are able to produce goods and services at a lower cost, making the economy more competitive internationally. This can lead to an increase in exports and a positive balance of trade, further supporting economic growth.

What would be the two points for this?

Analyse how a rise in household incomes would be likely to affect economic growth (6)

1. Positive impact through increased consumer spending

2. Greater savings and investment, which further supports economic growth

Explain the difference between income and wealth?

Income is a flow of money over time in return for labour services performed whereas wealth is a stock of assets given a monetary value

Explain one possible cause of the unequal distribution of income in the UK?

The average income of females is lower than that of males. In the UK, there is equal pay for equal work by law, but still the average income of females is lower. The main reason for this is that many women take time out from their careers to have and raise and children, although it may also be due in part to (illegal) gender discrimination

What are the two "Positive" and "negative" against points?

Evaluate all the consequences for the UK economy of an unequal distribution of income.

Negative

1. Reduced consumption among lower-income households

2. Increased poverty and social inequality

Positive

1. Incentives for innovation and entrepreunership

2. Increased savings and investment