Poverty

Absolute Poverty: a condition where people’s income is too low to enable them to meet their basic needs, 

Relative Poverty: a condition where people are poor in comparison to others in the country. Their income is too low to enable them to enjoy the average standard of living in their country. 

The vicious circle of poverty: a situation where people become trapped in poverty. 

What are the Causes of Poverty?

There are many reasons why people could be poor:

1. Lack of productive resources
2. Lack of education
3. Being unemployed
4. Being in low-paid work
5. Old age, disability, and ill health
6. Vulnerability to climate change and natural disasters
7. Wars and internal conflicts
8. Corruption

Government Policy Measures to Correct Poverty

• Improving the quantity and quality of education
• Promoting economic growth – increased government expenditure or reduced interest rates will increase aggregate demand leading to more employment thus reducing poverty
• Introducing or raising the national minimum wage
• Encouraging large MNCs to invest in the country
• Providing generous state benefits/welfare services to the elderly, sick, and disabled to avoid absolute poverty
• Land reforms – making ownership of land more equal between landowners and agricultural workers
• Progressive taxes on personal incomes to reduce income inequality
• Reducing indirect taxes such as VAT on essential items
• Subsidised low-cost homes

International Measures to Reduce Poverty

• Food aid
• Technological aid
• Financial aid and low-cost loans
• Debt relief – partial or full cancellation of loans from overseas governments and institutions

Government Policies on Distribution of Income

• The policies are driven by the understanding that uneven distribution of income is socially divisive.
• Policies are made such that the government can ensure everyone has access to a certain standard of living.
• The government also has to ensure that it does not reduce incentives for entrepreneurs and workers in the process of redistribution of income.

How Does Government Influence Distribution of Income

1. Taxation (progressive taxes)
2. Provision of cash benefits (unemployment benefits)
3. Provision of free state education and healthcare (to provide everyone equal opportunity to increase living standards)
4. Using labor policies (minimum wage) and macroeconomic policies (taxes, interest rates, and government expenditure)