question archive In a capitalist economy, is income inequality necessary for economic growth?
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In a capitalist economy, is income inequality necessary for economic growth?
Income inequality hurts economic growth, especially high inequality. Income inequality to individuals especially employees, makes them less productive employees, which means lower wages, which means lower overall participation in the economy. While that's obviously bad news for poor families, it also hurts those at the top.
Step-by-step explanation
Income inequality is how unevenly income is distributed throughout a population. The less equal the distribution, the higher income inequality is. Income inequality is often accompanied by wealth inequality, which is the uneven distribution of wealth. Capitalism is an economic structure where capital resources are owned by private individuals or corporations. The development of goods and services in the general market, known as a market economy, is focused on supply and demand rather than on central planning, known as a planned economy or command economy. Due to its potential for higher profits, equal opportunities, economic independence, and the decreased position of the state, the global transition to capitalism has contributed to the big problem of growing economic inequality because certain people and groups are more capable of manipulating and taking advantage of what capitalism is. A basic principle of capitalism is that individuals are motivated by the profit incentive. Therefore, you can say the potential of reward makes inequality an essential ingredient of capitalism. However, Economists have wondered for decades whether inequality is bad or good for growth in the long term. They found new evidence that inequality and growth are intertwined in complex ways and found that, overall, growth is reduced by both high and low levels of inequality.