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In economics, income distribution covers how a country's total GDP is distributed amongst its population. [1] Economic theory and economic policy have long seen income and its distribution as a central concern. Unequal distribution of income causes economic inequality which is a concern in almost all countries around the world. [2] [3]
It has been used as an input for testing theories explaining the distribution of income, for example human capital theory and the theory of economic discrimination (Becker, 1993, 1971). In welfare economics , a level of feasible output possibilities is commonly distinguished from the distribution of income for those output possibilities.
Income distribution has always been a central concern of economic theory and economic policy. Classical economists such as Adam Smith, Thomas Malthus and David Ricardo were mainly concerned with factor income distribution, that is, the distribution of income between the main factors of production, land, labour and capital.
Points on the Lorenz curve represent statements such as, "the bottom 20% of all households have 10% of the total income." A perfectly equal income distribution would be one in which every person has the same income. In this case, the bottom N% of society would always have N% of the income.
The real (inflation adjusted) income of the global top 1% increased approximately 60%, while the middle classes of the emerging economies (those around the 50th percentile of the global income distribution in 1988) rose 70–80%. For example, in 2000, 5 million Chinese households earned between $11,500 and $43,000 in 2016 dollars.
The relative income hypothesis was developed by James Duesenberry in 1949. It consists of two separate consumption hypothesis. It consists of two separate consumption hypothesis. The first hypothesis states that an individual's attitude to consumption is dictated more by their income in relation to others than by an abstract standard of living .
In addition, monetary factors affect income distribution and economic growth. Income distribution is a nominal variable and economic growth is an actual variable. The concept of currency neutrality may apply in economic-growth research; while studying income distribution, currency factors are important and cannot be ignored.
In economics, the absolute income hypothesis concerns how a consumer divides their disposable income between consumption and saving. [1] It is part of the theory of consumption proposed by economist John Maynard Keynes. The hypothesis was subject to further research in the 1960s and 70s, most notably by American economist James Tobin (1918 ...