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Micro 6.5

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32 views1 page

Micro 6.5

Uploaded by

aadikalra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Micro Topic 6.

5
Equality
​ ead the quote and answer the questions.
Part 1- Check Your Understanding​- R
“Income inequality is troubling because, among other things, it means that many people in our
society don't have the opportunities to advance”- Ben Bernanke
1. Identify three different reasons why people in our society might not have the opportunity to advance.
Answers will vary. Lack of ability, lack of education and training, discrimination, luck, market power,
mobility, access to financial markets, etc.

2. Pick one reason from your answer above. Identify a specific policy that could address this issue and
explain why the policy would improve income mobility.
Answers will vary. E.g. the government can subsidize preschool education to increase overall human
capital.
Part 2- Practice​- ​A​ssume that Curve 2 is
the Lorenz curve for Cliffordland.
3. If 80% of households earn 55% of the
income, what percent of income does the
richest quintile earn? ​45%
4. What percent of income does the
second richest quintile earn?
25%
5. If the middle quintile earns 15% of the
income, what percent of income does the
second poorest quintile earn?
10% = 30% - 15% - 5%
6. Assume that Cliffordland adopts
policies designed to redistribute income.
How will these policies affect Curve 2?
Explain. ​Curve 2 will shift closer to Curve
1 since Cliffordland will have less income
inequality.
7. Explain why it is unlikely that
Cliffordland, or any other country, will
have a Lorenz curve like Curve 1.​ Curve 1
shows a country with no income inequality. The only way this is possible is if income is equally distributed
regardless of ability, education, influence, or work ethic. No country in history has done this.
Part 3- Practice​- ​Use the chart to answer the following questions.
8. Which country has the most income inequality? How can you tell?
Chille. The higher the coefficient the more inequality
9. Given just this information, which country likely has the most progressive
income tax? Explain.
Sweden. The lower the coefficient the less inequality. A progressive income tax
reduces income inequality.
10. What is the difference between a country that has a Gini coefficient of 0
and a country that has a Gini coefficient of 1?
0 means perfect equality. 1 means perfect inequality.
Video Help: ​https://bit.ly/2GepJkO ​©Copyright Jacob Clifford 2020. ​www.ACDCecon.com
Annual license required. Do not use unless you have purchased a license

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