James Daniel D.

Swinton
BSA 2-9

Review Questions
1. What is the extent of relative inequality in developing countries, and how is this related to the
extent of absolute poverty?
 It is stated in UNDP report that income inequality increased at an average of 11% between
1990 and 2010 in developing countries, and over 75% of the population lives in a society
where income is more unequally distributed than in the 1990s. The report also addresses
inequalities beyond income, including education, health and nutrition disparities, as well as
gender inequality. For instance, although women participate more in the work force today,
they still earn significantly less than men, are underrepresented among political decision-
makers and are disproportionately represented in vulnerable employment. Increased level of
inequality increased the proportion of poor in the population. This negative effect of
inequality influences the efficiency of growth.
2. Who are the poor, and what are their economic characteristics?
 Poverty is a severe constraint on normal living. It is a forced reduction in consumption, due
to insufficient income and menacing surrounding conditions. A poor is an individual who
does not have the minimum essential necessities of life. They experience unescapable
hunger, insufficient and unhealthy diet. Hunger and malnutrition weaken their body, mind
and overall, their capability to work. Aside from that, the most frequent condition of the
extreme poor is a life of limited irregular income flows. Their job is irregular and badly paid.
Furthermore, they are working all the time but getting so low hourly wages that total monthly
wage is insufficient to cover basic expenditure. All their wage is normally spent on
consumption with no savings, especially if they feel that there is some stability over time
assured.
3. What determines the nature of economic growth—that is, who benefits from economic
growth, and why?
 For centuries, economists have been trying to answer questions about what determines
economic growth and to make predictions about the future. Malthus for instance predicted
that expanding population growth combined with limited resources and declining
productivity would result in only a subsistence income. It is certainly in the he slowly
growing agrarian era in which Malthus lived. However, the same cannot be said nowadays
because of the technological advances in the latest century. Technological progress is what
ultimately determines growth. Other factors such as investment in human capital, natural
resources and physical capital also affects economic growth.
 In my opinion, it depends on the nature of economic growth. For example, if economic
growth leads to more pollution and congestion, then living standards may not seem to hit. It
 also depends on the distribution of economic growth – who benefits from economic growth.
If growth benefits primarily the richest in society, then growth may do little to overcome
poverty. It will just widen the large gap between the rich and the poor. For developing
economies in Sub-Saharan Africa, economic growth enables countries to escape the worst
levels of poverty. Even a small level of economic growth can facilitate higher living
standards and an improvement in life expectancy.
4. Are rapid economic growth and more equal distributions of income compatible or conflicting
objectives for low-income countries? To put it another way, is rapid growth achievable only at
the cost of greater inequalities in the distribution of income, or can a lessening of income
disparities contribute to higher growth rates?
 According to new OECD analysis, reducing income inequality would boost economic
growth. This work finds that countries where income inequality is decreasing grow faster
than those with rising inequality. OECD Secretary-General Angel Gurría said that Countries
that promote equal opportunity for all from an early age are those that will grow and prosper.
5. Do the poor benefit from growth, and does this depend on the type of growth a developing
country experience? What might be done to help the poor benefit more?
 It depends on the extent to which the poor participate in the growth process and share in its
proceeds. If the goal is to give more benefits to the poor, we should focus our attention not on
income inequality at a specific point in time, but rather on wealth-creating public policies
like reducing the tax burden, liberalizing the labor market, fighting corruption and the free
movement of goods and services. Any policy that goes against these broad positions
generates adverse effects by allowing small groups to enrich themselves at the expense of the
large majority of consumers and taxpayers. It is these kinds of inequalities that should be the
priority for groups seeking a more equitable distribution of wealth. Economic growth and the
resulting increased opportunities benefit the entire population, including the poor.
6. What is so bad about extreme inequality?
 The growing gap between rich and poor is undermining the fight against poverty, damaging
our economies and tearing our societies apart. Hundreds of millions of people are living in
extreme poverty while huge rewards go to those at the very top. There are more billionaires
than ever before, and their fortunes have grown to record levels however, the world’s poorest
got even poorer. Furthermore, high inequality strengthens the political power of the rich and
hence their economic bargaining power. Usually, this power will be used to encourage
outcomes favorable to themselves.
7. What kinds of policies are required to reduce the magnitude and extent of absolute poverty?
 We speak of relative poverty when people are unable to take part in what is considered a
normal, acceptable standard of living in a society. By contrast, absolute poverty describes a
situation where individuals have no access to the basic necessities of life – food, shelter, and
clothing. The policies required to reduce the magnitude and extent of absolute poverty are
 those wealth-creating public policies like reducing the tax burden, liberalizing the labor
market, fighting corruption and the free movement of goods and services.
Reference:
https://www.economicshelp.org/macroeconomics/economic-growth/benefits-
growth/#:~:text=The%20benefits%20of%20economic%20growth,a%20rise%20in%20life
%20expectancy.
https://www.oxfam.org/en/5-shocking-facts-about-extreme-global-inequality-and-how-even-it
https://www.oecd.org/newsroom/inequality-hurts-economic-
growth.htm#:~:text=09%2F12%2F2014%20%2D%20Reducing,than%20those%20with
%20rising%20inequality.
http://sdg.iisd.org/news/undp-report-discusses-inequality-in-developing-
countries/#:~:text=Income%20inequality%20increased%20an%20average,1990s%2C
%20according%20to%20the%20report.