How does high income inequality suppress economic growth Bri

How does high income inequality suppress economic growth? Briefly describe three or more channels.

Solution

high income equality will suppress economic growth in following ways:

1. high inequality means, there is still a class of poor who needs to be taken care of by the govt. so some govt expenditure are diverted to benefitting the deprived class and providing them basic necessities. therefore govt expenditure available for growth will be less and therefore it will slow down the growth of economy.

2. higher inequality, some of the childrens are still deprived of basic eduaction or they are getting lower level of education, that means our future generation of labor resource will be weaker and les efficient and this will effect ecionomic growth.

3. higher inequality will lead to dissatisfaction among poor people towards the party in power and may lead to social and political unrest, it can also lead to increase in crime rate in a country, this all will effect growth negatively

4. higher inequality also leads to lower demand for luxuries and expensive good so full capacity of production can\'t be utilized and we have operate below efficient point and this will lead to unemployment