Question

The accompanying table contains data on the U.S. economy for the years 1983 and \(2013 .\) The second column shows the poverty threshold. The third column shows the consumer price index (CPI), a measure of the overall level of prices. And the fourth column shows U.S. gross domestic product (GDP) per capita, a measure of the standard of living. $$ \begin{array}{c|c|c|c} \text { Year } & \begin{array}{c} \text { Poverty } \\ \text { threshold } \end{array} & \text { CPI (1982-1984 = 100) } & \begin{array}{c} \text { GDP per } \\ \text { capita } \end{array} \\ 1983 & \$ 5,180 & 99.6 & \$ 15,525 \\ 2013 & 11,490 & 233.0 & 53,086 \end{array} $$ a. By what factor has the poverty threshold increased from 1983 to 2013 ? That is, has it doubled, tripled, and so on? b. By what factor has the CPI (a measure of the overall price level) increased from 1983 to \(2013 ?\) That is, has it doubled, tripled, and so on? c. By what factor has GDP per capita (a measure of the standard of living) increased from 1983 to 2013 ? That is, has it doubled, tripled, and so on? d. What do your results tell you about how people officially classified as "poor" have done economically relative to other U.S. citizens?

Short answer

Answer: We can conclude that people officially classified as "poor" have not experienced as substantial economic growth as the rest of the U.S. citizens, indicating a potential widening gap between "poor" people and the rest of the population.

Step-by-step solution

a) Factor increase in Poverty threshold

To find the factor by which the poverty threshold has increased from 1983 to 2013, we must divide the poverty threshold of 2013 by the poverty threshold of 1983: Factor_increase_Poverty = (Poverty_threshold_2013) / (Poverty_threshold_1983) Factor_increase_Poverty = (\(11,490) / (\)5,180) Factor_increase_Poverty ≈ 2.22

b) Factor increase in Consumer Price Index (CPI)

To find the factor by which the CPI has increased from 1983 to 2013, we must divide the CPI of 2013 by the CPI of 1983: Factor_increase_CPI = (CPI_2013) / (CPI_1983) Factor_increase_CPI = (233.0) / (99.6) Factor_increase_CPI ≈ 2.34

c) Factor increase in GDP per capita

To find the factor by which the GDP per capita has increased from 1983 to 2013, we must divide the GDP per capita of 2013 by the GDP per capita of 1983: Factor_increase_GDP = (GDP_per_capita_2013) / (GDP_per_capita_1983) Factor_increase_GDP = (\(53,086) / (\)15,525) Factor_increase_GDP ≈ 3.42

d) Economic Situation of "Poor" people relative to other U.S. citizens

By analyzing the results, we can observe that the factor increase for the poverty threshold is around 2.22, while the factor increase for the CPI is around 2.34, and the factor increase for the GDP per capita is around 3.42. This implies that the standard of living (GDP per capita) has increased more significantly than the poverty threshold and CPI. Therefore, we can conclude that people officially classified as "poor" have not experienced as substantial economic growth as the rest of the U.S. citizens. This indicates a potential widening gap between "poor" people and the rest of the population.

Key concepts

Poverty Threshold

The poverty threshold is a critical economic indicator that helps determine the minimum level of income deemed adequate in a particular country. In essence, it is the point at which an individual or family is classified as "poor." For the U.S., this threshold is used to determine eligibility for various social programs and measure economic health. The poverty threshold changes over time, reflecting adjustments for inflation and cost of living variations.

• In 1983, the threshold in the U.S. was \\(5,180.
• By 2013, it had increased to \\)11,490.

This growth shows that the threshold more than doubled, rising by about 2.22 times. However, even though the threshold increased, its impact on quality of life also depends on other economic factors, like inflation and wages.Observing the increase helps understand discrepancies in poverty alleviation efforts and whether the pace of poverty threshold growth keeps up with actual living expenses.

Consumer Price Index (CPI)

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is an essential economic indicator used to gauge the cost inflation over time. By doing a comparison:

• In 1983, the CPI was set at 99.6.
• By 2013, it rose to 233.0.

This increase means the CPI climbed approximately 2.34 times, showing noticeable inflation over the 30-year period. Understanding the CPI helps assess whether income keeps pace with inflation, impacting consumer purchasing power directly. A higher CPI reflects higher prices and reduced buying power unless wages adjust accordingly. In relation to the poverty threshold, if the threshold does not increase proportionally with the CPI, those at or below the poverty line may experience greater economic hardship due to the loss of purchasing power.

GDP per capita

Gross Domestic Product (GDP) per capita is a critical measure of a country's economic output that divides GDP by the population. It essentially estimates the average economic output per person and is often used as an indicator of the standard of living.In the United States:

• 1983 had a GDP per capita of \\(15,525.
• By 2013, this increased significantly to \\)53,086.

This shift indicates an increase by around 3.42 times, reflecting substantial growth in economic capacity and, by extension, a potential rise in the standard of living.While GDP per capita provides a snapshot of economic health, it does not measure inequality or account for resource distribution. Therefore, while GDP per capita has jumped, it doesn't mean every individual's living standards grew equally, especially if wealth distribution does not favor lower-income families.

Standard of Living

Standard of living refers to the level of wealth, comfort, material goods, and necessities available to a socio-economic class in a geographic area. It is a broad term that includes not just economic wealth but also factors like housing quality, healthcare access, and education availability. With GDP per capita growth and a relatively lower increase in poverty thresholds, it may initially suggest that the standard of living is improving. However: - If wealth accumulates primarily among higher earners, a rising GDP may not equitably enhance the well-being of all citizens. In evaluating quality of life, it's important to consider:
- **Inequality:** Are gaps between different socio-economic classes widening? - **Living Conditions:** Has the quality of housing, healthcare, and education improved universally? Thus, while the increase in GDP per capita points towards economic growth, the individual's experience of that growth can differ significantly based on access and equity in wealth distribution.