Chapter 20, Problem 2QCMC

Principles of Economics, 7th Editi...

7th Edition
N. Gregory Mankiw
ISBN: 9781285165875

Chapter
Section

Principles of Economics, 7th Editi...

7th Edition
N. Gregory Mankiw
ISBN: 9781285165875
Textbook Problem

When income inequality is compared across countries, one finds that the United States a. is one of the most equal nations in the world. b. is one of the least equal nations in the world. c. has more equality than most advanced nations but less equality than many developing countries. d. has less equality than most advanced nations but more equality than many developing countries.

To determine
The comparison of income inequality between US and other countries.

Explanation

Option (d):

The income inequality represents the unequal distribution of income across various economic participants of the economy. When there is income inequality, the poor people of the economy will earn very small income, whereas the rich people will earn very high level of income from the economy. When the income inequality is lower, the difference between the income earned by the poorest fifth and the richest fifth will be the minimum. From the available data about the US economy, the income distribution is very unequal. About the poorest one-fifth of the US population earns about 4 percent of the income of the economy, whereas the top one-fifth of the rich population earns about 50 percent of the US total economy's income. This means that the US is the least equal nation in the world.

The data on the income inequality about the countries show us that the income inequality in the US is very high. The poorest fifth of the population earns only 4 percent of the economy's income, whereas the richest fifth earns about 50 percent of the total income of the economy. This higher difference between the income earned by the poor and the rich makes the US the most unequal nation in the world because no other countries have such a huge difference between the two economic participant groups. Thus, option 'd' is correct.

Option (a):

The most equal nation in the world will have no income inequality between the percentage of income earned by the poor and rich. But in the case of the US, the poorest fifth of the population earns only 4 percent of the economy's income, whereas the richest fifth earns about 50 percent of the total income of the economy...

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