Rich and poor
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This document discusses factors that determine levels of wealth and economic well-being. It examines savings rates, growth of labor efficiency through education and skills, and inherited wealth. While economists have traditionally focused on capital accumulation, other factors like a country's ability to adapt to new knowledge are also important. The document also analyzes different measures of economic well-being like income, consumption, and wealth, and discusses inequality between rich and poor countries.
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Rich and poor
- 1. The Rich and the Poor Presented By: Aayush Bahuguna
- 2. Presentation will not help you decide whether your friend is rich or poor!
- 3. Factors Determining Level of well Being (How rich you are?) • The savings rate, which determines the person’s ability to accumulate capital.
- 4. Factors Determining Level of well Being (How rich you are?) • The growth rate of the efficiency of labor, which depends on :- Education Cumulative Knowledge Adaptive Social skills Same factor determine well being of country.
- 5. Factors Determining Level of well Being (How rich you are?) • In past, when efficiency of labor was growing slow, inherited wealth also played important role in determining people’s station. Now days inherited wealth matters relatively less and your personal earning and saving matters more. • Now day the growth rate of your personal "efficiency of labor" will be a big factor in determining your place in the distribution of well- being.
- 6. Who is rich? • Economists looked at capital accumulation as the main factor in economic growth and individual wealth. • In Marxist economics, it is capitalists who save and accumulate the economy's capital.
- 7. Does saving leads to wealth? • However, saving is not the only road to wealth, for a nation or for an individual. • Most people living under communist dictatorships are worse off than ordinary workers under capitalism, because communist dictatorships do not do well at adapting to advances in knowledge.
- 8. Measures of economic well-being • Income is the amount of money that an individual or a household earns in a year. Income is a flow. • Consumption is the value of goods and services that an individual or a household consumes in a year. Consumption is a flow. • Wealth is the value of the assets of an individual or a household at a point in time. Wealth is a stock.
- 9. Income as a measure of well-being • Income has a transitory component. Some years, people earn windfalls, due to unusually large bonuses or high profits from personal businesses. In other years, people earn less than usual, because they might be laid off part of the year or they may own a business that does poorly that year. • Income also has a "life-cycle" component, meaning that it depends on where you are in the life cycle. A graduate student may have a low income, but once he/she completes his/her degree their income will likely take a leap. A retired person may have a low income, but he has sufficient wealth to sustain a lavish lifestyle.
- 10. Wealth as a measure of well-being • Wealth also has some shortcomings as a measure of well-being. • Statistical measures of wealth count only financial assets, without taking an individual's earning power into account. • A new graduate of medical school may have no wealth (in fact, he could be carrying a large debt on a student loan), but his prospects for future earnings may be bright. • In general, younger people have less wealth than what they will be able to accumulate later in their lives.
- 11. Consumption as a measure of well- being • People seem to make consumption decisions more on the basis of long-term income and wealth than on the basis of current income and wealth. • It makes sense to focus on consumption as an indicator of how people view their economic circumstances. • Using consumption as a measure, economists tend to find that poverty in the United States is shrinking.
- 12. Rich and Poor Countries • International inequality is inequality between countries. • Economic differences between rich and poor countries are considerable. • According to the United Nations Human Development Report 2004, the GDP per capita in countries with high, medium and low human development was 24,806, 4,269 and 1,184 PPP$, respectively (PPP$ = purchasing power parity measured in United States dollars).
- 13. Facts about distribution of wealth • Richest 1% of adults alone owned 40% of global assets in the year 2000. • Richest 10% of adults accounted for 85% of the world total assets. • The three richest people possess more financial assets than the poorest 10% of the world's population, combined. • As of May 2005, the three richest people in the world have assets that exceed the combined gross domestic product of the 47 countries with the least GDP.