Economics • Economic BasicsMedium
What does the 'Kuznets Curve' hypothesize regarding income inequality and economic development?
A. Income inequality first increases and then decreases as an economy transitions from a pre-industrial to an industrialized state✓ Correct Answer
B. Income inequality continuously falls as a nation's per capita income rises
C. Economic growth has no correlation with the distribution of income within a country
D. Income inequality remains constant regardless of the stage of industrialization
💡 Solution & Explanation
The Kuznets Curve hypothesizes that income inequality first rises and subsequently declines as an economy transitions from an agrarian society to an industrial economy, forming an inverted U-shaped curve. Continuous fall or total independence from economic growth contradicts the core empirical observations made by Simon Kuznets. This economic hypothesis helps analyze how wealth distribution shifts during structural economic transformation.
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