Economics • Economic BasicsMedium
What economic phenomenon does the Kuznets Curve hypothesize regarding income inequality during economic development?
A. Income inequality continuously worsens as a nation transitions from an industrial to a service economy
B. Income inequality first increases and then decreases as per capita income rises✓ Correct Answer
C. Income inequality remains entirely constant regardless of shifts in gross domestic product
D. Income inequality decreases rapidly during early industrialization before rising sharply in advanced stages
💡 Solution & Explanation
The Kuznets Curve suggests that in the early stages of economic growth, urbanization and industrial migration widen income disparities between rural and urban sectors. As development matures, redistributive government policies, welfare transfers, and expanded educational access reduce overall inequality, forming an inverted U-shape. Simon Kuznets originally formulated this hypothesis using cross-sectional data.
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