Poverty (Poverty and Inequality)

Summary

Poverty is a complex issue involving both absolute and relative poverty. Absolute poverty is when individuals lack basic necessities, while relative poverty is about being poor compared to others in the same society.

• Absolute Poverty — occurs when individuals lack necessities for life, leading to hunger and malnutrition.
  Example: Living on less than $1.90 a day.
• Relative Poverty — exists due to inequality but doesn't necessarily imply absolute poverty.
  Example: Earning less than 60% of the median income in a country.
• Multidimensional Poverty Index (MPI) — assesses poverty beyond income by considering health, education, and living standards.
  Example: A high MPI value indicates greater poverty.
• Economic Growth — can reduce absolute poverty but may not affect relative poverty without state support.
  Example: Rising GDP in a country.
• Welfare Benefits — government aid designed to raise incomes and reduce poverty.
  Example: Financial support for low-income families.
• Progressive Taxation — reduces relative poverty by decreasing income inequality.
  Example: Higher taxes on the wealthy to fund social programs.

Exam Tips

Key Definitions to Remember

• Absolute Poverty
• Relative Poverty
• Multidimensional Poverty Index (MPI)

Common Confusions

• Confusing absolute poverty with relative poverty
• Assuming economic growth automatically reduces all types of poverty

Typical Exam Questions

• Why does economic growth not necessarily reduce relative poverty? Economic growth may increase overall wealth but not address income inequality.
• What happens to relative poverty if welfare benefits are increased? Relative poverty decreases as welfare benefits raise the incomes of the poorest.
• What is the likely impact of civil wars and conflict on absolute poverty? Civil wars increase absolute poverty by destroying resources and infrastructure.

What Examiners Usually Test

• Understanding the difference between absolute and relative poverty
• The impact of economic policies on poverty
• The role of government interventions in reducing poverty