A Poverty Trap

question 119

Multiple Choice

A poverty trap:

• A) occurs when poor nations save "too much."
• B) is a self-reinforcing mechanism that causes the poor to stay poor.
• C) occurs when nations devote too much of the budget to foreign aid and not enough to domestic poverty.
• D) is the legislative struggle that occurs when passing poverty-reducing legislation.

Identify factors affecting income mobility and the importance of generational wealth transfer.

Recognize arguments for and against income redistribution and their societal impacts.

Grasp the economic and social challenges posed by poverty and government interventions.

Analyze the influences of government benefits on low-income earners and their financial behaviors.

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Definitions:

Reserve Requirement

This is the minimum amount of funds that a bank must hold in reserve against deposits made by customers, a requirement set by the central bank.

Interest Rates

The cost of borrowing money or the return on invested capital, usually expressed as a percentage.

Life Insurance Companies

Financial institutions that provide policies to individuals, offering a sum of money to designated beneficiaries upon the policyholder's death in exchange for premiums paid during the policyholder’s lifetime.

Pension Funds

Financial programs that accumulate resources during an employee's working years and pay out retirement benefits upon reaching retirement age.