ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Inequality creates incentives for people to move from lower rewarding activities to higher rewarding activities, which raises output and should reduce the difference in rewards. Inequality also produces differences in living standards that can lead some into poverty and social exclusion.

Detailed explanation-2: -What are Consequences of Inequality. While some inequality is inevitable in a market-based economic system as a result of differences in talent, effort, and luck, excessive inequality could erode social cohesion, lead to political polarization, and ultimately lower economic growth (Berg and Ostry, 2011; Rodrik 1999).

Detailed explanation-3: -A degree of inequality can play a beneficial role for economic growth when that inequality is driven by market forces and related to hard work and growth-enhancing incentives like risk taking, innovation, capital investment, and agglomeration economies.

Detailed explanation-4: -Income inequality can be reduced directly by decreasing the incomes of the richest or by increasing the incomes of the poorest. Policies focusing on the latter include increasing employment or wages and transferring income.