Poverty, inequality and development practice questions (A-Level Economics)

Sample questions

All 2 free A-Level Economics questions on this topic, from the free A-Level Economics Multiple Choice Questions with Answers and the free A-Level Economics Essay Questions and Answers. Each answer is behind its own toggle; the whole paper, its PDF and the full answer key are on the exam page.

1. Question 11 mark · Economic development
   The Human Development Index (HDI) is a composite measure that combines indicators of:
   • A.
     GDP per capita, the unemployment rate and the inflation rate
   • B.
     health (life expectancy at birth), education (mean and expected years of schooling) and living standards (GNI per capita at purchasing power parity)
   • C.
     life expectancy, the Gini coefficient and the rate of GDP growth
   • D.
     adult literacy, infant mortality and access to clean water
   Show answerFrom the free A-Level Economics Multiple Choice Questions with Answers →
2. Question 225 marks · Income inequality, progressive taxation, redistribution
   Income inequality and taxation. Evaluate the view that raising income tax rates on high earners is the most effective way for a government to reduce income inequality.
   Show answerFrom the free A-Level Economics Essay Questions and Answers →

Key terms

The definitions and formulas A-Level Economics expects for poverty, inequality and development, typeset as they appear on the paper.

Absolute and relative poverty

Absolute poverty is income below the level needed for basic needs (the World Bank line of 2.15 US dollars a day at 2017 purchasing power parity). Relative poverty is income below a share of the national median (60 percent in the UK), so it can rise even as everyone gets richer.

Lorenz curve and Gini coefficient

The Lorenz curve plots the cumulative share of income against the cumulative share of the population; the 45-degree line is perfect equality. The Gini coefficient is the area between them as a fraction of the whole triangle, from 0 (equality) to 1 (one person has everything).

$$G = \frac{A}{A + B}$$

Causes of inequality

Differences in wages (skills, bargaining power, discrimination), wealth (inheritance, asset prices), the tax and benefit system, unemployment and, between countries, differences in capital and institutions. Kuznets suggested inequality rises then falls with development.

Progressive taxation and redistribution

A progressive tax takes a rising share of income as income rises; together with transfers it lowers the Gini coefficient. The cost is a possible disincentive to work and invest, the Laffer curve argument against high marginal rates.

Measures of development

The Human Development Index combines life expectancy, mean and expected years of schooling, and GNI per capita at purchasing power parity. Other indicators: the Multidimensional Poverty Index, the Gender Inequality Index, access to clean water, mobile phones per thousand.

Constraints on growth and development

Primary product dependency and volatile commodity prices (the Prebisch-Singer hypothesis), the savings gap (Harrod-Domar model), foreign currency gaps and debt, capital flight, corruption and weak institutions, poor infrastructure, education and health, and population growth.

Development strategies

Market-oriented: trade liberalisation, promotion of FDI, removal of subsidies, floating exchange rates, microfinance. Interventionist: human capital, protectionism for infant industries, managed exchange rates, infrastructure, buffer stocks. Plus aid, debt relief, fair trade and tourism. Evaluate against a country's specific constraints.

Frequently asked questions

Other A-Level Economics topics

• Nature of economics and economic methodology
• How markets work: demand, supply, elasticity
• Market failure and government intervention
• Measures of economic performance
• Aggregate demand and aggregate supply
• National income, growth and the multiplier
• Macroeconomic objectives and policies
• Business growth, market structures and the labour market
• Globalisation, trade and exchange rates
• The financial sector

All A-Level Economics topics · A-Level Economics exam guide · All free practice exams