Consider the following statements

1. When economy grows, market forces increase inequality at first
2. When economy grows, market forces ultimately decrease inequality

Which of the below curves represent the above hypothesis?

a) Phillips Curve
b) Kuznets Curve
c) Bell Curve
d) Lorenz Inequality Curve

Ans- b

Explanation-Kuznets curve graphs the hypothesis that as an economy develops, market forces first increase and then decrease economic inequality. It is represented by a curve .

Kuznets Curve

Curve implies that as a nation undergoes industrialization –the center of the nation’s economy shift to the cities. Internal migration by farmers looking for better-paying jobs causes a significant rural-urban inequality gap as income rise will be slow initially. Inequality decreases when a certain level of average income is reached and the processes of industrialization – democratization and the rise of the welfare state – allow for the trickle-down of the benefits from rapid growthand increases per-capita income.

Phillips curve represents the relationship between the rate of inflation and the unemployment rate.

Lorenz inequality curve is a graphical representation ofthe distribution of income or of wealth