Income Inequality and Gini Ratio Quiz

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Questions and Answers

What does the Gini ratio help to distinguish between?

Income and wealth disparity

International and global inequality (correct)

Domestic and international inequality

Absolute and relative poverty

Which measure is criticized for not accurately capturing the purchasing power of local currencies?

Household survey data

The absolute gap

The Gini ratio

Income per head in US$ at official exchange rates (correct)

What is the main contributor to global inequality today?

Inequality between nations (correct)

Inequality in education

Inequality within nations

Inequality in resource distribution

What criterion does the World Bank use to define absolute poverty?

$1.90 a day at PPP Signup and view all the answers

What does measuring the dispersion of income per capita help to examine?

Income inequality across countries Signup and view all the answers

What does the poverty gap indicate as opposed to the headcount index?

The depth of poverty experienced by individuals below the line Signup and view all the answers

Which of the following indices is NOT included in the Human Development Index (HDI)?

Multidimensional poverty levels Signup and view all the answers

Which of the following is a dimension measured by the Multidimensional Poverty Index (MPI)?

Health Signup and view all the answers

What is the primary focus of the World Bank's approach to poverty reduction?

Promoting opportunity, facilitating empowerment, and enhancing security Signup and view all the answers

Why do rankings based on per capita income differ from those based on the HDI or MPI?

Expenses on social factors like education and health vary across countries Signup and view all the answers

What is the impact of a 1% growth rate in the richest country, Norway, on its per capita income?

It adds about $700 to per capita income. Signup and view all the answers

How much growth would the Democratic Republic of the Congo need to narrow the gap with Norway?

700% Signup and view all the answers

What is a significant limitation of comparing average incomes between poor and rich countries?

It overlooks the income of the poorest in poor countries. Signup and view all the answers

What can be said about income inequality based on the provided information?

Income inequality is understated when comparing only average incomes. Signup and view all the answers

Which country is mentioned as experiencing positive growth and serves as the richest country example?

Norway Signup and view all the answers

What is the approximate increase in per capita income for countries like the Democratic Republic of the Congo when Norway grows at 1%?

$6–$7 Signup and view all the answers

Which of the following countries is NOT listed as a country experiencing positive growth?

Canada Signup and view all the answers

What does the income per head of the poorest people in poor countries indicate?

It reveals a vast gap when compared with rich countries. Signup and view all the answers

Which of the following pairs includes a rich country in contrast to a poor country mentioned?

Norway - Nigeria Signup and view all the answers

What is the relationship between growth rates and the income gap according to the provided content?

Lower growth rates contribute to widening income gaps. Signup and view all the answers

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.