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UK Government spending and inequality (a) Using a Lorenz curve diagram, explain how income inequality is measured using the Gini coefficient - Edexcel - A-Level Economics A - Question 6 - 2022 - Paper 2
Question 6
UK Government spending and inequality (a) Using a Lorenz curve diagram, explain how income inequality is measured using the Gini coefficient. Refer to Extract A in ... show full transcript
Worked Solution & Example Answer:UK Government spending and inequality (a) Using a Lorenz curve diagram, explain how income inequality is measured using the Gini coefficient - Edexcel - A-Level Economics A - Question 6 - 2022 - Paper 2
Step 1
Using a Lorenz curve diagram, explain how income inequality is measured using the Gini coefficient.
Answer
The Lorenz curve is a graphical representation of income distribution within a society. It plots the cumulative percentage of total income received by the cumulative percentage of recipients, from the poorest to the richest.
To measure income inequality, we refer to the Gini coefficient, which quantifies the deviation of the Lorenz curve from perfect equality (where everyone has the same income). The Gini coefficient ranges from 0 to 1:
- 0 indicates perfect equality (everyone has the same income).
- 1 indicates maximum inequality (one person has all income, and everyone else has none).
To develop my answer, I would include a diagram of the Lorenz curve, highlighting the area between the line of equality and the Lorenz curve, which is used to calculate the Gini coefficient. The more the Lorenz curve deviates from the diagonal line, the higher the Gini coefficient, indicating greater inequality.
Step 2
With reference to Figure 1 and Extract A, examine two likely causes of income inequality within the UK.
Answer
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Regional Disparities: Extract A highlights significant regional disparities in income levels, particularly between London and the North. For example, London has higher disposable household incomes compared to regions like the North East, which contributes to wider income inequality. Factors include differences in job availability and economic investment across regions.
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Educational Inequities: The extract mentions that accessibility to quality education varies, with less skilled regions lacking necessary resources. This educational gap leads to a disparity in job opportunities and income potential, further perpetuating inequality.
Step 3
With reference to Figure 2, assess whether an increase in real income improves subjective happiness within the UK.
Answer
From Figure 2, it appears that individuals with higher incomes tend to report slightly better subjective happiness scores. For instance, those earning above £40,000 reported a happiness score of 7.29, compared to lower income brackets which report lower scores (like £10,000-£20,000 with a score of 7.02). This suggests a positive correlation between income and happiness.
However, this correlation may not be straightforward. Other factors, such as social connections, mental health, and personal circumstances, play substantial roles in determining happiness. Thus, while increased income may lead to improved happiness, it is not the sole determinant, and other aspects must be considered in a comprehensive evaluation.
Step 4
Using reference to Extract C and your own knowledge, discuss methods for the government to increase tax revenue.
Answer
To increase tax revenue, the government can consider the following strategies:
- Increasing Tax Rates: Raising income tax or corporate tax rates could result in higher government revenue. This can be politically challenging but may be necessary for funding public services.
- Broadening the Tax Base: Expanding the number of individuals and entities that pay taxes, possibly by closing tax loopholes or reducing tax evasion, would enhance revenue.
- Encouraging Economic Growth: Policies that stimulate growth can increase taxable income levels. Investments in infrastructure can lead to more jobs and higher incomes, which increases tax revenues indirectly.
Overall, adjusting existing taxes or introducing new forms of taxation like capital gains tax could also be effective.
Step 5
With reference to Extract B, discuss the benefits of an increase in infrastructure spending on the UK economy. Use an aggregate demand approach and explain your answer.
Answer
Increasing infrastructure spending has several benefits for the UK economy:
- Stimulating Aggregate Demand: Government spending on infrastructure directly boosts aggregate demand through increased public expenditure. This spending can lead to job creation and higher incomes for those involved in construction and related sectors, further driving demand.
- Long-term Economic Growth: Improved infrastructure, such as roads and railways, enhances productivity and efficiency across the economy, making it easier for businesses to operate. This long-term benefit can lead to sustained economic growth.
In essence, infrastructure spending not only supports immediate economic activity but also lays the groundwork for future economic resilience and growth.