To What Extent May a More Equal Distribution of Income Contribute to a Greater Economic Growth?

437 Words2 Pages
To what extent may a more equal distribution of income contribute to a greater economic growth? A more equitable level of income can help an economy accelerate growth and promote economic development as well as promote human development. However, the concept of fair is highly subjective since it doesn’t mean equal distribution of income. Equity in income distribution is very important for an economy to grow since it reduces the distance between the rich and the poor. Within this essay, I will be discussing the advantages of this happening as well as the disadvantages that may occur. Furthermore, to understand the question, we must first understand what economic growth is. It is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. Firstly, the propensity to consume will increase. This is because the proportion of income spent for the poorer is higher so the redistribution of income will increase consumption and therefore increase aggregate demand. This will lead to an injection into the economy since those of much lower income will see an increase, which will increase their spending. They will be able to afford access to crucial resources, such as education and medical care. This may lead to the amount of quality of productive resources available to a country to increase. A better education and health care will improve the labors’ output, as productivity will be higher. Further to this, people will be more able to save more from their increase in income, which allows higher rates of investment and therefore increase in growth. The graph above is a PPF curve, which shows consumer goods against capital goods. Since there is an increase in Aggregate demand, this will potentially lead to an increase in economic growth as seen from the graph above. However, on the other hand an excessively equal
Open Document