What this lesson teaches
I can read real GDP, GNI, per-capita figures, unemployment rate, CPI, HDI and the Gini coefficient.
Syllabus 8843, 3.2.1(c). Standard of Living and Macroeconomics Indicators: Macroeconomic indicators; Indicators of economic performance include real Gross Domestic Product (GDP) or Gross National Income (GNI), real GDP or GNI per capita, unemployment rate and Consumer Price Index (CPI); Human Development Index (HDI) as an indicator to reflect standard of living; Gini coefficient as an indicator to reflect income distribution
Make a guess
A country's Gini coefficient falls from 0.45 to 0.38. Are its poorest households better off?
- Yes. A lower Gini means the poorest households now earn more.
- Not necessarily: the shares are fairer, but the total may shrink.
- Not necessarily: the Gini measures wealth, so income may not change.
Show the answer
Not necessarily: the shares are fairer, but the total may shrink.
A lower Gini shows a fairer share. If total income shrank, the poor could have a bigger share of a smaller pie.
The Lorenz curve and Gini coefficient show how equally income is shared; averages can hide big differences.
A Lorenz curve ranks people from poorest to richest and plots the share of total income received by each cumulative share of the population.
If income were shared equally, the curve would follow the 45-degree line of equality. The further the curve bows below it, the more unequal the distribution.
The Gini coefficient measures that gap: area A divided by the whole area under the equality line (A + B). 0 means perfect equality, 1 means one person has everything. Calculating it is not required.
Singapore's Gini is noticeably lower once government taxes and transfers are included, which shows how much policy redistributes income.
- Lorenz curve
- Further from the equality line: more unequal.
- Gini
- 0 = equal, 1 = completely unequal.
Worked example: Reading two Lorenz curves
On curve A, the poorest 50% of households receive 20% of income. On curve B, they receive 30%, and B lies closer to the line of equality all the way along.
- B is more equal than A, so it has a lower Gini coefficient.
- But a more equal share does not tell us whether people are richer: that depends on total income too.
- If total income fell sharply, the poorest half could have a bigger share of a smaller total and still be worse off.
Watch out for this
A lower Gini coefficient means the poor are better off.
It means income is shared more equally. The poor could still be worse off if total income has fallen.
Check your understanding
The Lorenz curve moves closer to the line of equality. What does this show?
- Income is distributed more equally.
- Inequality has increased, because the curve has shifted.
- Total income has risen, so most households are better off.
Show the answer
Income is distributed more equally.
Right. The gap between the curve and the equality line has shrunk, so the Gini falls.