Consider the following distribution of income in a 12-person economy, with the modern urban?wage ₌ 3, the traditional rural income ₌ 1, and the informal urban wage ₌ 2: (1, 1, 1, 1, 2, 2, 2, 2, 3, 3, 3, 3). The poverty line ₌ 1.25. Suppose rural incomes are raised to 1.5 through expanded agricultural exports. What happens to relative inequality? Absolute poverty? Calculate the Ahluwalia-Chenery Welfare Index for terciles (3 fractiles) under GNP weights and equal weights. Why is the equal-weighted index higher?

Question

Quizplus · Accepted Answer

The Answer is Inequality decreases. Poverty is eliminated. ACWI ₌ 0.083 with GNP weights. ACWI ₌ 0.167 with equal weights.

Consider the Following Distribution of Income in a 12-Person Economy