Questions and Answers
What does the Gini ratio help to distinguish between?
Which measure is criticized for not accurately capturing the purchasing power of local currencies?
What is the main contributor to global inequality today?
What criterion does the World Bank use to define absolute poverty?
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What does measuring the dispersion of income per capita help to examine?
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What does the poverty gap indicate as opposed to the headcount index?
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Which of the following indices is NOT included in the Human Development Index (HDI)?
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Which of the following is a dimension measured by the Multidimensional Poverty Index (MPI)?
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What is the primary focus of the World Bank's approach to poverty reduction?
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Why do rankings based on per capita income differ from those based on the HDI or MPI?
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What is the impact of a 1% growth rate in the richest country, Norway, on its per capita income?
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How much growth would the Democratic Republic of the Congo need to narrow the gap with Norway?
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What is a significant limitation of comparing average incomes between poor and rich countries?
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What can be said about income inequality based on the provided information?
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Which country is mentioned as experiencing positive growth and serves as the richest country example?
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What is the approximate increase in per capita income for countries like the Democratic Republic of the Congo when Norway grows at 1%?
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Which of the following countries is NOT listed as a country experiencing positive growth?
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What does the income per head of the poorest people in poor countries indicate?
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Which of the following pairs includes a rich country in contrast to a poor country mentioned?
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What is the relationship between growth rates and the income gap according to the provided content?
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Study Notes
Measuring the Development Gap
- The development gap is assessed using absolute and relative measures of income inequality between the richest and poorest countries.
- Metrics include the range of income, dispersion of income per capita, and the Gini ratio derived from the Lorenz curve.
- International inequality considers per capita income across countries, while global inequality also includes the distribution of income within countries.
Trends in Income Inequality
- Both international and global inequality have risen since the 19th century.
- The main driver of current global inequality is disparities between nations rather than within nations.
Importance of Purchasing Power Parity (PPP)
- Income per head measured in US$ using official exchange rates may not accurately reflect local purchasing power.
- PPP accounts for lower prices of non-traded goods in poorer countries compared to richer ones.
Poverty Measurement Standards
- Absolute poverty defined by the World Bank is living on $1.90 a day at PPP.
- The headcount index measures how many people live below the poverty line, while the poverty gap reflects how far below the line individuals live.
- The food energy method measures income needed for basic nutritional requirements.
World Bank's Poverty Reduction Strategy
- The World Bank promotes a three-pronged strategy for poverty reduction:
- Promoting opportunity
- Facilitating empowerment
- Enhancing security
- Growth is significant for poverty reduction, but the rate of decline in poverty depends on the elasticity of the poverty rate related to economic growth.
Human Development Index (HDI)
- The UNDP constructs the HDI annually, integrating life expectancy, educational attainment, and standard of living (measured at PPP).
- Countries are ranked differently based on HDI and per capita income, with social expenditure on education and health impacting HDI rankings.
Multidimensional Poverty Index (MPI)
- MPI evaluates poverty using three dimensions: education, health, and standard of living, with sub-dimensions for a more comprehensive assessment.
Economic Disparities in Growth Rates
- The absolute gap in income between countries can understate income inequality, as it focuses on average incomes rather than the disparity between the wealthy and poor within nations.
- Countries with significant wealth (e.g., Norway) add substantially more to their per capita income with the same growth rate compared to poorer nations.
Impact on Vulnerable Populations
- Urban and rural poor are disproportionately affected by food price volatility, which can lock them into cycles of poverty without adequate infrastructure for price stabilization.
International Action for Poverty Alleviation
- Suggested measures include:
- Promoting global financial stability
- Opening markets in developed countries to poorer nations
- Supporting the production of global public goods like disease control and agricultural research.
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Description
Test your knowledge on the measurement of income inequality across countries. This quiz covers concepts such as the absolute and relative gaps in income, income dispersion, and the Gini ratio derived from the Lorenz curve. Assess your understanding of these important economic indicators.
