Question

According to Kuznets, in the process of development inequality in an economy will normally

(a) first rise and then fall.
(b) first fall and then rise.
(c) remain about the same.
(d) show no definite pattern.

Answer 1

According to Kuznets, inequality in an economy usually rises and then falls in the process of development, depicted in the Kuznets curve, leading to various patterns in income distribution and potential changes in inequality and poverty levels. So, the correct answer is option a.

Step-by-step explanation:

According to Kuznets, in the process of development, inequality in an economy will normally first rise and then fall. This is known as the Kuznets curve, where an economy experiences increasing inequality during the early stages of industrialization as capital owners and skilled workers benefit at a greater rate compared to low-skill workers. However, as the economy matures and education becomes more widespread, income distribution becomes more equal and inequality reduces.

Income changes affecting poverty and inequality could work in the following ways:

1. If incomes rise for both low-income and high-income workers but rise more for high-income earners, this will increase inequality, potentially leading to a higher Gini coefficient, a measure of income inequality.
2. When incomes fall for both groups but fall more for high-income earners, inequality may decrease as the income gap narrows.