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Lecture 9-Income distribution I.pdf

Lecture 9-Income distribution I.pdf - 30-Jan-18...

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30-Jan-18 1 MACROECONOMICS LECTURE 9 INCOME DISTRIBUTION I CONTENTS OF THE LECTURE 1. GDP and inequality 2. Links between income and wealth 3. How do we measure inequality? 4. Some data for inequality CONTENTS OF THE LECTURE 1. GDP and inequality 2. Links between income and wealth 3. How do we measure inequality? 4. Some data for inequality
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30-Jan-18 2 1. GDP AND INEQUALITY The IS-LM model allows us to identify a policy mix that leads to a higher GDP . However, is a large GDP always enough to a achieve high welfare? It might be the case that GDP in a country is high but the income produced is received primarily by a few rich people. In that case the aggregate welfare of this society might be very low. This means that it is important to examine not only how people can produce more income but also how this income is distributed . 4 CONTENTS OF THE LECTURE 1. GDP and inequality 2. Links between income and wealth 3. How do we measure inequality? 4. Some data for inequality 2. LINKS BETWEEN INCOME AND WEALTH Income can be viewed as the flow deriving from a stock of wealth . There are three types of wealth: (1) Physical wealth : it consists of consumer durables, such as houses and machines (e.g. cars, televisions sets). (2) Financial wealth : it includes shares, government bonds and bank accounts. (3) Human capital : it is the wealth embodied in individuals in the form of skills, and has two quite separate sources: (a) it is the result of past investment in education and training; (b) it also arises from ‘natural talent’. 6
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30-Jan-18 3 2. LINKS BETWEEN INCOME AND WEALTH Money income : For example, a landlord gets money income from his/her house; a taxi driver receives money income from his/her automobile. Non-money income : For example, the television sets provide entertainment to people who own them; the privately-owed cars provide transport services. 7 What type of income is produced from physical wealth? 2. LINKS BETWEEN INCOME AND WEALTH Money income : For example, someone who has deposits receives an annual flow of interest; or someone who own some stocks receives a annual flow of dividends. 8 What type of income is produced from financial wealth? 2. LINKS BETWEEN INCOME AND WEALTH Money income : For example, when people work human capital produces wage income. Non-money income : For example, when people do works at home (like gardening or cooking) their human capital produces useful services.
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