Question

Identify the possible reason or reasons for this stark difference between income inequality and consumption inequality. Intergenerational mobility allows children to consume more than their parents. The poverty line does not reflect relative poverty. The richest quintile has the ability to save a larger percentage of its income. Individuals experiencing temporary fluctuations in their incomes are more likely to maintain moderate spending habits.

Answer 1

Answer:

• The richest quintile has the ability to save a larger percentage of its income.
• Individuals experiencing temporary fluctuations in their incomes are more likely to maintain moderate spending habits.

Explanation:

First part of this question reads:

In the United States, the richest quintile of the population receives 13 times as much income as the poorest quintile. However, the richest quintile only spends 4 times as much as the poorest quintile.

The richest quantile can afford to save more than the poorest quantile because they get enough income to manage their daily needs and then save. The poorest quantile on the other hand face a daily struggle and so have to spend all or most of their income to survive.

When the richer quantile goes through temporary fluctuations, they maintain moderate spending because they know it is temporary and so they keep saving. This is not the case for the poorer quantiles who have to spend according to their income - regardless of its fluctuating - to survive.