2003-2004 Essay Contest

Glossary of Terms

Absolute poverty: a definition of poverty that is set at an estimate of a family's minimum consumption needs.

Aid to Families with Dependent Children (AFDC): a joint federal and state program that provides financial help to needy families with children under 18.

Earned Income Tax Credit (EITC): a federal transfer program that gives income-tax money back to low-income families.

Externality: an activity that causes incidental benefits or costs to others. No corresponding compensation is provided to or paid by those who generate the externality.

Gini coefficient: a measure of inequality which ranges from 0 to 1. (0 indicates complete equality and 1 complete inequality). It can be used to compare inequality between geographic areas or changes over time.

Income: includes earnings from employment, interest, rent and profits.

Lorenz curve: the curve that relates the cumulative proportion of income received (along the vertical axis) to the cumulative proportion of families or other income-receiving units.

Negative income tax: the proposal to subsidize families and individuals with money payments when their incomes fall below a set guaranteed income; the negative tax would decrease as earned income increases.1

Poverty gap: total amount below the poverty line that the income of a poor household falls. Demonstrates the number of people under the poverty line and how far below the poverty line they are.

Poverty line: the minimum level of income necessary for a person to meet his/her basic needs. (In 2002, for a family of four including two children under 18, this was $18,244.)

Progressive tax: a system of taxation in which the greater an individual's income, the higher the percentage taxed.

Relative poverty: a definition of poverty that is set as a fraction of the mean or median level of income or consumption of the general population.

Unemployment rate: the percentage of the labor force (total number of people currently employed or actively seeking employment) that is unemployed (actively looking for a job, but not currently holding one).

Wealth: total of all assets held by an individual or household. These holdings include financial assets such as stocks and bonds and physical assets such as houses and land.1

1 McConnell, Campbell R. and Stanley L. Brue. Economics: Principles, Problems, and Policies. 11th ed. New York: McGraw-Hill Publishing Company, 1990.


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