Business path way Essay Example | Topics and Well Written Essays - 1500 words

Business path way - Essay Example Income inequality may either benefit an economy or derail the economic growth. The extent to which income inequality negatively affects the economic growth is debatable. This essay provides an elaborate argument about the degree in which income inequality may affect the economy. Overview This essay provides an overview of some of the ways in which income inequality may influence an economy. It contains several ideas regarding the degree in which income inequality may affect growth of an economy. It provides thorough analysis of possible positive effects of income inequality and the negative effects of income inequality on an economy. This essay covers an elaborate debate which clearly points out at risks that may be imposed on an economy due to income inequality. 2.0 Main Body: Effects Analysis Income inequality is instigated by supply and demand for labor caused by imperfect competition and uneven distribution of information. Income inequality may have different effects on economy. It may either drag or catapult growth of economy. The central theme of this analysis is to make an evaluation about the degree in which income inequality may negatively affect economic growth. 2.1 Positive Effects on Economic Growth High income inequality may be vital for economic growth. ... Excessive money in circulation may have extremely negative effect on the growth an economy due to inflation. Foreign trade may be very expensive especially when a country tries to import raw materials. Moreover, low income earners may tend to borrow money from financial institutions and this can be used as a tool for controlling money circulation (Castello-Climent 2010, 293-315). Additionally, there income inequality may result into wide gap between the rich and the poor. Wider gap between the rich and the poor can be very helpful in promoting competition and innovativeness. There is a high level of social stratification which prompts competition for status thus spurring growth of the economy due to hard work (Judis 2013, n.p). Also high income inequality may decrease efficiency because of low incentive to work. Because of income inequality, the rich will always get richer and save money for investment (Allen 1999, 143-150). Furthermore, high income earners may enjoy all the faciliti es such as the recreational facilities present in the country thus increasing revenue earned from these facilities. Happiness which is associated with high income contributes a lot in predicting the future behaviors such as productivity in the labor market and happier people also tend to be healthier and live longer (Shin 2012, 2049-2056). 2.2 Negative Effects on Economic Growth Nevertheless, income inequality has an adverse effect on the growth of an economy. Equal income inequality reduces the gap between the rich and the poor thus leading to distributive efficiency within a country. Distributive efficiency reduces marginal utility of resources and further lowers personal utility. An extra dollar consumed by a low income earner is automatically directed to necessities which are