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6 (a) With reference to the information provided, explain the distinction between absolute poverty and relative poverty - Edexcel - A-Level Economics A - Question 6 - 2018 - Paper 2
Question 6
6 (a) With reference to the information provided, explain the distinction between absolute poverty and relative poverty. (b) With reference to the information provi... show full transcript
Worked Solution & Example Answer:6 (a) With reference to the information provided, explain the distinction between absolute poverty and relative poverty - Edexcel - A-Level Economics A - Question 6 - 2018 - Paper 2
Step 1
With reference to the information provided, explain the distinction between absolute poverty and relative poverty.
Answer
Absolute poverty refers to a condition where individuals lack the minimum resources to maintain basic living standards, such as food, clean water, and shelter. This is measured in a fixed way and is often benchmarked against a poverty line, like the $1.90 per day standard as defined by the World Bank.
In contrast, relative poverty takes into account the economic condition of individuals in relation to others in society. It’s often defined in terms of income inequality and how a person's financial status compares to the average within their community or country. Individuals living in relative poverty may have enough to survive but not enough to participate fully in society or enjoy the same standard of living as their peers.
Step 2
With reference to the information provided and your own knowledge, examine two factors that might explain the differing rates of decline in absolute poverty in East Asia and Sub-Saharan Africa.
Answer
One factor that explains the differing rates of decline in absolute poverty is the economic growth strategies employed by nations in East Asia. Many East Asian countries adopted export-led growth models, benefiting from globalization by integrating into the global market, which significantly boosted their economies. Policies focused on education and infrastructure investment further contributed to reducing poverty levels.
Conversely, Sub-Saharan Africa has faced challenges such as political instability, poor infrastructure, and lower levels of investment. These socio-economic factors have hindered effective participation in global trade, thereby slowing the decline in absolute poverty rates.
Step 3
With reference to Extract A, discuss two macroeconomic policies, apart from protectionism, that a government could use to reduce the negative effects of globalisation.
Answer
One macroeconomic policy that could be utilized is the implementation of progressive taxation. By ensuring that wealthier individuals and corporations are taxed at higher rates, governments can redistribute income to address inequality and provide support for those adversely affected by globalization.
Another policy is the enhancement of social safety nets and welfare programs. By establishing comprehensive support systems for displaced workers and those in vulnerable positions, governments can mitigate the negative impacts of globalization while promoting overall economic stability.
Step 4
Assess the view that some level of inequality is desirable to maintain an appropriate incentive to work in a country (Extracts B, 19 and 20).
Answer
The argument for some level of inequality suggests that it can drive motivation and innovation, as individuals may strive for better financial rewards through hard work and entrepreneurship. A certain degree of income variation can encourage investment in education and skills development, thus promoting economic growth.
However, excessive inequality can lead to social unrest, decreased social mobility, and limit opportunities for lower-income individuals. Ultimately, while some inequality may foster motivation, a balance must be struck to ensure that it does not undermine social cohesion and economic fairness.
Step 5
Discuss the role of the financial sector in the growth and development of developing countries.
Answer
The financial sector plays a crucial role in the economic development of developing nations by facilitating investment and providing access to capital. Banks and financial institutions can help mobilize savings and channel funds into productive investments, promoting business expansion and job creation.
Moreover, a robust financial sector enhances the ability of entrepreneurs to access credit, which is vital for starting and growing businesses. Additionally, the financial sector contributes to developing the taxes and fiscal revenues that governments need to fund public services and infrastructure projects, ultimately supporting long-term economic stability and growth.