The poverty trap refers to ?
Correct answer: C. a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more because doing so will reduce the amount of benefit income to which they are entitled and increase the amount to tax
- A. a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more income for themselves and their families because doing so will mean they have to pay back the benefits they have previously received
- B. a situation in which workers are unable to find jobs.
- C. a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more because doing so will reduce the amount of benefit income to which they are entitled and increase the amount to tax
- D. a situation in which those receiving state benefits are discriminated against by employers and so find it more difficult to find jobs.
Explanation
A poverty trap occurs when withdrawing benefits and increasing taxes as earnings rise leaves a person little better off from working more. Option a is less precise because benefits are generally reduced or taxed away as income rises, rather than simply repaid as a past debt.
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Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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