Question

Evaluate the effect of income inequality on the U.S. economy, such as unemployment, economic growth, and other economic factors.

Answer 1

United States income inequality is reducing aggregate demand growth (spending by families, companies , and governments) by transferring an ever greater share of income to wealthy households that invest rather than spend. This increase in inequality has been motivated largely by the inability of average American workers to keep up with productivity growth across the economy. Certain economic and policy trends especially a long-term decline in interest rates have compensated for the drag on demand growth that stems from increasing inequality. Nonetheless, these compensatory mechanisms are likely to fail in the future , which means that the disparity caused is dragging on demand

Income Inequality has risen significantly in the United States since the late 1970s, and in recent years, the problem has gained increased attention. Economic analysts have also been increasingly worried about "secular stagnation" or a persistent deficit in aggregate demand over the past decade, fearing that this deficit would constrain American economic growth in the years to come. Such two trends are correlated with increasing inequality, and persistent demand weakness. In particular, rising inequality shifts wealth to higher-saving households at the top from low-saving households at the bottom and center of the income distribution.

A strong and increasing body of macroeconomic evidence indicates that the U.S. economy requires lower and lower interest rates simply to produce the same over time rise in aggregate demand. In short, there's something driving down the growth rate of aggregate demand, and in each successive year macroeconomic policies need to become more and more aggressive simply to keep demand constant. Often, this creation was called "secular stagnation."

Inequality of national and global income is becoming a rising problem which needs to be addressed. The top earners will benefit from the economic recovery more than will the bottom earners. The top 10 per cent earn more than 50 per cent of overall income in the United States. With outsourcing and corporations replacing employees with technology, inequality has risen. With job training and investment in education, the United States could increase income inequality.