Which of the following best describes income inequality trends over the last few decades?

Question

BlackTom AI · Accepted Answer

In evaluating the question about income inequality trends, we need to compare each statement against the broader empirical consensus and key economic reasoning.
Option 1: 'It has been growing, which is good for the economy.' This mixes two separate claims: growth in inequality and an assertion that this is beneficial. The common economic literature generally argues that rising inequality can have negative consequences for long-run growth, consumption, and social cohesion, especially when growth is not accompanied by broad-based opportunities. The phrasing here also overstates a supposed positive outcome without supporting mechanisms like efficient redistribution or productivity gains for all groups.
Option 2: 'It has declined, which has a negative effect on the economy.' This option contains two incompatible ideas. First, the factual claim that inequality has declined over recent decades is not widely supported across many advanced economies, where inequality has often risen or remained high. Second, even if inequality had declined, asserting a negative economic effect would require evidence that reduced inequality harmed growth or demand, which is not a standard conclusion. This option confuses the observed trend with an unsupported causal claim about negative consequences.
Option 3: 'It has been growing, which has a negative effect on the economy.' This aligns with a substantial body of research noting that income inequality has widened in many economies over the last several decades. The growth of inequality is often linked to adverse effects such as weaker aggregate demand, reduced upward mobility, potential underinvestment in human capital, and social and political externalities. While there are nuances across countries and time periods, the overall trend of rising inequality is frequently associated with negative macroeconomic and social outcomes rather than benefits, making this the most accurate characterization among the options.

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Which of the following best describes income inequality trends over the last few decades?

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