Effects of income inequality The impact of economic inequality affects a large part of the population in different ways. The most obvious effects of wealth inequality are that it creates social classes. The first subdivision that we can draw is that population is split in two categories: the rich and the poor. There are a variety of economic effects caused by income inequality. Wealthy people have a higher income and consequently spend less of each marginal dollar, which caused the economic growth to slow.
First are demand side policies which there are fiscal policy and monetary policy. Fiscal policy will increase income taxes to decrease disposable income, lower corporate taxes to cut back on investment and lower government spending. These will directly impact on aggregate demand to decrease the price level. For monetary policy government could increase interest rates and reduce the money supply. However, in the long run these will have an effect on unemployment that will rise up and getting even worse.
1.Introduction The phenomenon of economic inequality has existed for a long time in history. One would usually expect todays inequality rates to be much lower than in times of European colonialism and exploitation in the 17th until early twentieth century where organisations like the British East Indian Company rose to account for half of worlds trade. However, recent Studies by the Organisation for Economic Co-operation and development can prove that inequality worldwide is about the same as it was in 1820 (The Economist, 2014). How is that possible? The increase in economic inequality in the last century is a big issue and has created great controversies among political representatives and economic experts.
Without the support of the bottom 99 percent, democracies will lose their functionality. Democracies around the world are based on equal opportunity; the growing income disparity threatens to erode that foundation on which our society is built. Income inequality is an inevitable characteristic of a capitalist market economy, but the rate at which the income gap has
Factors effecting business cycle Employment At times of high unemployment, factories are underutilized, output is lowered and the economy can suffer to the point of recession. Conversely, low unemployment can result in higher productivity and an improved economy. Employment is just one variable, and its effect should be considered in conjunction with others. Roger Leroy Miller, author of “Economics Today,” reminds us that technological innovation can displace workers and increase unemployment, but it can also result in an increase in output. Inflation Inflation occurs when the average prices of goods and services rise.
This condition is termed as Inequality. Some studies have emphasized inequality as a growing social problem. Too much inequality can be destructive, because income inequality and wealth concentration can hinder long term growth. Early statistical studies comparing inequality to economic growth had been inconclusive. Economic inequality varies between societies, historical periods, economic structures and systems.
Another argument refutes the claim that lower taxes for the rich encourage them to invest more which brings about economic growth. In the late 1920s and once again in the earlier part of the last decade, a lot of money was put into speculative investments than productive investments. Hence, increased government spending on improving the labour force and infrastructure through revenue generated from taxes can possibly be more effective than investments in driving economic growth. Now let us look at the other side of the coin – the negative impact of taxation. Taking into consideration other factors such as government spending, business cycle conditions and monetary policy, research has consistently pointed towards the fact that taxes have a significant negative effect on economic
Statistics from the ministry of manpower (MOM) indicates that real income growth at the bottom 20th percentile was 2.3% per annum in 2013. The slow increase in income for the poor, coupled with rapid growth of the cost of living in Singapore makes it difficult for the poor to catch up and close the income divide. Furthermore, the author was surprised to discover that there is no minimum wage set out in Singapore. Over the years, as more foreign talents compete for jobs at lower expected wages, the income of the poorer families continues to be kept low. Today, as many as 150,000 families are estimated to earn less than $1,500 a month.
Importantly, this study also argued that the welfare costs of inflation vary depending on the different income groups. Low income groups are more affected by inflation than high income groups. This study has proved that there is negative relationship between inflation rate and welfare of the citizens. Chen et al. (2014) findings have been supported by Woodford (2002) and Nistico (2007).