Advanced Macroeconomics

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Advance Macroeconomics

1. Why the rich become richer and poor become poorer?
It is because of the rising in inequality. He rich have got richer, and the poor have become relatively poorer. It is not that the real incomes of the lowest paid have fallen (though in some cases real incomes have been stagnant) but, they have fallen behind higher income earners. The gap between the highest paid and lowest paid has increased. In the past couple of decades it feels like the ‘rich have got richer and the poor have got poorer’. Why is this? Reasons for Rising inequality in past 2 decades

Reforms to Welfare State. 
Governments have sought to retreat from expensive universal benefits. In the UK, benefits have been linked to inflation. This means that benefits have increased at a slower rate than real wages. Therefore, those surviving on state benefits have become worse off. It is also more difficult to get benefits in UK and US

Cut in Income Tax. 
Both the UK and US have seen cuts in the top rate of income tax, and increases in indirect taxes. This has made the tax system less progressive. (e.g. top rate of income tax in UK used to be 80% now it is 40%.

Importance of Skills in Global Economy.
 Arguably globalization and economic development have changed the nature of the economy. There is now less demand for unskilled manual labour. This is because there has been a shift in manufacturing to the east. Therefore, workers with low skills and qualifications have found it harder to get well paid work. However, those with good qualifications and education have seen significant rises in real pay. There has been a rise in bonuses for top executives.

Growth in Insider / Outsider Economy.

There has been a growth in the insider / outsider model. Basically, there has been an increase in the number of poorly paid, part time, temporary jobs which offer little protection. This is known as the ‘outsider’ economy. The other part of the economy ‘insider’ involves highly paid, secure jobs which are generally well paid.

Wealth.

High income earners have the ability to buy wealth, e.g. house. Therefore, the rich can benefit from rising asset prices, but, the poor cannot. Certainly wealth inequality is much greater than income inequality.

One question worth considering 
Does it matter if there is an increase in inequality, as long as the poor become better off in absolute terms? e.g. If poorest section increase incomes by 3% and richest section increase incomes by 12%. Or would it be preferable if both rich and poor increased incomes by 2%?

Rich Countries Poor Countries

another way to look at this question, is from the perspective of rich countries and poor countries. Poor countries e.g. in Sub Saharan Africa continue to struggle with low or negative economic growth. Rich countries have much higher growth rates. But, in some cases (e.g. China and India) poor countries have been catching up. 2. Describe the character of the people of Israel.

Israelis are citizens or nationals of the modern state of Israel. Although Israel is a Jewish state, it has multi-ethnic, home to people of different ethnic and national backgrounds. The largest ethnic group is that of Israeli Jews, followed by Arab citizens, mostly Arab Muslims, with smaller numbers of Arab Christians in addition to Druze, Circassians, and others. As a result, some Israelis don't take their nationality as an ethnicity, but identify themselves with both their nationality and their ancestral origins. Due to the multi-ethnic composition, Israel is a multicultural nation, home to a wide variety of traditions and values. Large-scale aliyah in the late nineteenth and early twentieth centuries from diaspora communities in Europe and Yemen and more recent large-scale aliyah from North Africa, Western Asia, North America, Former Soviet Union and Ethiopia introduced many new cultural elements and has had broad impact. The resulting cultural mix may be described as...
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