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In the United States, the richest quintile of the population receives 13 times as much income as the poorest quintile. However, the richest quintile only spends 4 times as much as the poorest quintile.
Identify the possible reason or reasons for this stark difference between income inequality and consumption inequality.
A. The poverty line does not reflect relative poverty.
B. Individuals experiencing temporary fluctuations in their incomes are more likely to maintain moderate spending habits.
C. The richest quintile has the ability to save a larger percentage of its income.
D. Intergenerational mobility allows children to consume more than their parents.

Respuesta :

Answer: B. Individuals experiencing temporary fluctuations in their incomes are more likely to maintain moderate spending habits.

C. The richest quintile has the ability to save a larger percentage of its income

Explanation:

Income inequality has to do with the differences in the income of people. It has to do with how incomw I'm an economy are distributed unevenly.

The reason for the difference between income inequality and consumption inequality is that the poor generally spend more of their income on the consumption of goods while the rich save more.

Also, the individuals experiencing temporary fluctuations in their incomes are more likely to maintain moderate spending habits.

Therefore, the correct options are B and C.

The reason behind the stark disparity between income and consumption inequality are;

  • Individuals experiencing temporary fluctuations in their incomes are more likely to maintain moderate spending habits.

  • The richest quintile has the ability to save a larger percentage of its income.

What is the reason behind difference between income inequality and consumption inequality?

  • Low income earns only moderate-income which is only sufficient to fulfill their consumption need with no saving ability.

  • Rich people have a higher tendency to save and invest more than low-income group due to their higher marginal propensity to save.

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