Professional Documents
Culture Documents
Those who are stuck in the poverty trap cannot earn any more money without
losing their benefits so if this benefits ceiling was decreased further due the
lessening of taxes on high income earners, then those who are stuck in the trap
can begin to earn more money and take jobs that provide them with a larger pay
packet, due to their benefits being less. This money kept by the higher income
earners can be kept by higher income earners. Then due to trickledown theory
higher income earners will spend this money in the economy causing an increase
in aggregate demand. According to the trickle-down theory, if tax rates are
lower, people have an incentive to work more because they get to keep more of
the income they earn. They then spend or invest that income, and either of these
activities will improve everyones prosperity, not just the prosperity of those in
the highest income tax brackets. Furthermore, in the end, the government may
actually collect more income tax despite the lower tax rates because of the
additional work performed. This can then be spent on education prospects or
supply side policies shown in my thirds point.
prices as well as the crisis in the EU inflation cannot afford to decrease further
back into last months -0.1%.
The decrease in employment, causing a reduction in disposable income, which
means a reduction in consumer spending meaning a reduction therefore in AD as
AD equals. C+G+I+(X-M) C being consumer spending. This then causes a new
equilibrium point of E1 and results in a lower inflation level of P2, and a lower
growth figure of Q2.
Lastly the government could implement supply side policies to help economic
growth of the country helping to create more jobs in the economy. This then
would allow for more employment opportunities in the future as the overall
countries income is growing,
allowing for more firms to
open and in a stable
economy invest and increase
employment opportunities
helping to reduce poverty as
more jobs are available to
those who need them.
This policy would be
done by increasing the
long range aggregate
supply curve of the
economy. A recent
example of would be
the introduction of the
HS2 railway. The
increase in the
consecutiveness of the
nation allows those in
areas such as
Birmingham to access
London in a small
amount of time. This
makes it easier for
firms to interact and
coordinate activities across city boundaries. Making them more productive. This
then opens up opportunities for integration as well as specialisation of firms in
each city helping to promote the growth of firms, leading to economic growth of
the UK. This can be seen in the diagram below. Also jobs are created simply by
undergoing such a large supply side policy. These jobs could go to people living
in poverty helping them to be pulled out of the poverty trap.
Productivity of firms have increased as they are able to access other businesses
in other areas of the country due to increased connectivity. This then causes the
countries long range aggregate supply curve to increase.
Although these policies take a huge amount of time to complete and the effects
are very theoretical. Firms may not use the railway as a way of increasing
productivity, as well as the project taking up to 2026 at the latest. And by this
time poverty may of got worse in the UK. Also due to the poverty trap, shown in
my first paragraph, even if there are more jobs in the economy, those in poverty
on benefits are unlikely to accept work as they will be worse off. There seems to
be the only way to make the situation better is to make things worse off first.
Which many families in poverty cannot afford to do. So overall this policy would
not work without cooperation from my first point. And with the benefits system in
full change to universal credit, only accessible from computers which many
families in poverty do not have, there seems to be a slim chance the two will now
work together.
To conclude I see the use of the tax and benefits system combined with supply
side policies the best method for reducing poverty in the UK. This is due to the
fact that the need to decrease benefits to force people out of poverty, by forcing
them to get a job. Also the money saved from not having large tax bands for
high income earners, allows the government to receive higher receipts, as there
is a much higher number of people in work. This money saved can either be used
to tackle the huge budget deficit, or be used to help support the supply side
polices implemented in my third point. Both these policies working together
allows for lower income earners, stuck in the poverty trap, to be forced out of the
trap and to get a job which would provide more income. Thus allowing them to
be withdrawn from relative poverty, with the added benefit of the
macroeconomic objective of increasing the employment rate of the UK.