Two alternative policy interventions have been proposed as ways to improve the financial situation of individuals...

Two alternative policy interventions have been proposed as ways to improve the financial situation of individuals and households with the lowest incomes.

Policy 1: A matched saving scheme, under which whatever amount an individual can save each month, up to £500, will be matched pound-for-pound (i.e. doubled) by a contribution from government.

Policy 2: A universal basic income, under which all individuals will have £500 per month added to their income by the government, regardless of the size of their income.

a.Which of these policies is likely to be more effective in improving the financial situation of people with the lowest incomes? Briefly explain the reasoning behind your answer.

b.Which of these policies is likely to be more effective at reducing inter-personal or inter-household income and wealth inequality? Briefly explain the reasoning behind your answer.

Expert Solution

a. To improve the financial situation of people with the lowest incomes Policy 2 would be more effective according to which all indivisuals will have 500 euro per month added to their income by the govenment, regardless of the size of their income. it is becuase people with lowest amount will get equal level of amount as basic income which they require to fulfill their basic needs. This policy will promote equality among lowest income groups. this policy will help lowest income people to increase their income by assuring them a basic amount of money to fulfill their requierements.it will helpful in poverty-eradication.

b. To reduce inter-personal or inter-household income and wealth inequality, policy 1 would be more effective according to which whatever amount an individual can save each month up to 500 euro, will be matched pound-to-pound by a contributon from government.this is because every individual will get benefit in ratio to their saving capacity. It will attract lower income individual to save more and build wealth. this scheme will be helpful for people with lower or moderate income, they can increase their savings by this scheme.

Rahul Sunny answered 2 years ago

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