The passage below is accompanied by four questions. Based on the passage, choose the best answer for each question. Studies showing that income inequality plays a positive role in economic growth are largely based on three arguments. The first argument focuses on investment indivisibilities wherein large sunk costs are required when implementing new fundamental innovations. Without stock markets and financial institutions to mobilize large sums of money, a high concentration of wealth is needed for individuals to undertake new industrial activities accompanied by high sunk costs . . . [One study] shows the relation between economic growth and income inequality for 45 countries during 1966-1995. [It was found] that the increase in income inequality has a significant positive relationship with economic growth in the short and medium term. Using system GMM, [another study estimated] the relation between income inequality and economic growth for 106 countries during 1965– 2005 period. The results show that income inequality has a positive impact on economic growth in the short run, but the two are negatively correlated in the long run. The second argument is related to moral hazard and incentives . . . Because economic performance is determined by the unobservable level of effort that agents make, paying compensations without taking into account the economic performance achieved by individual agents will fail to elicit optimum effort from the agents. Thus, certain income inequalities contribute to growth by enhancing worker motivation . . . and by giving motivation to innovators and entrepreneurs . . . Finally, [another study] point[s] out that the concentration of wealth or stock ownership in relation to corporate governance contributes to growth. If stock ownership is distributed and owned by a large number of shareholders, it is not easy to make quick decisions due to the conflicting interests among shareholders, and this may also cause a free-rider problem in terms of monitoring and supervising managers and workers. . . . Various studies have examined the relationships between income inequality and economic growth, and most of these assert that a negative correlation exists between the two. . . . Analyzing 159 countries for 1980–2012, they conclude that there exists a negative relation between income inequality and economic growth; when the income share of the richest 20% of population increases by 1%, the GDP decreases by 0.08%, whereas when the income share of the poorest 20% of population increases by 1%, the GDP increases by 0.38%. Some studies find that inequality has a negative impact on growth due to poor human capital accumulation and low fertility rates . . . while [others] point out that inequality creates political instability, resulting in lower investment. . . . [Some economists] argue that widening income inequality has a negative impact on economic growth because it negatively affects social consensus or social capital formation. One important research topic is the correlation between democratization and income redistribution. [Some scholars] explain that social pressure for income redistribution rises as income inequality increases in a democratic society. In other words, when democratization extends suffrage to a wider class of people, the increased political power of low- and middle-income voters results in broader support for income redistribution and social welfare expansion. However . . . if the rich have more political influence than the poor, the democratic system actually worsens income inequality rather than improving it.
According to the incentive or moral hazard argument, which one of the designs below is most consistent with the claim that some inequality can raise growth?
Pay rewards on verifiable performance for highly productive workers.
The moral hazard argument says that effort cannot be observed directly, so paying everyone the same regardless of performance fails to draw out the best effort.
Inequality helps growth here only when higher pay is tied to higher performance, which motivates workers and innovators.
Concentrated ownership belongs to the third, governance argument; pay by tenure removes the link to output; and protected rents raise top incomes without linking pay to results.
Rewarding verifiable performance is exactly the incentive design the argument describes.
Hence, Pay rewards on verifiable performance for highly productive workers.
Similar Questions
The given sentence is missing in the paragraph below. Decide where it best fits among the options 1, 2, 3, or 4 indicated in the paragraph.
Sentence: "Everything is old-world, traditional techniques from Mexico," Ava emphasizes.
Paragraph: The sisters embrace the ways their great-grandfather built and repaired instruments. ____(1) ____. When crafting a Mexican guitarrón used in mariachi music, they use tacote wood for the top of the instrument. Once the wood is cut, they carve the neck and heel from a single block using tools like hand saws, chisels and sandpaper rather than modern power tools — and believe that this traditional method improves the tone of the instrument. ____(2) ____. Their store has a three-year waitlist for instruments that take months to create. ____(3) ____. The family's artisanship has attracted stars like Los Lobos, who own custom guitars made by all three generations of the Delgado family. ____(4) ____. For the sisters, involvement in the family business started at an early age. They each built their first instruments at age 9.
In the dynamic realm of creativity, artists often find themselves at the crossroads between drawing inspiration from diverse cultures and inadvertently crossing into the territory of cultural appropriation. Inspiration is the lifeblood of creativity, driving artists to create works that resonate across borders. The globalized nature of the modern world invites artists to draw from a vast array of cultural influences. When approached respectfully, inspiration becomes a bridge, fostering understanding and appreciation of cultural diversity. However, the line between inspiration and cultural appropriation can be thin and easily blurred. Cultural appropriation occurs when elements from a particular culture are borrowed without proper understanding, respect, or acknowledgment. This leads to the commodification of sacred symbols, the reinforcement of stereotypes, and the erasure of the cultural context from which these elements originated. It’s essential to recognize that the impact of cultural appropriation extends beyond the realm of artistic expression, influencing societal perceptions and perpetuating power imbalances.
Zombie cells may contribute to age-related chronic inflammation: this finding could help scientists understand more about the aging process and why the immune system becomes less effective as we get older. Zombie or “senescent” cells are damaged cells that can no longer divide and grow like normal cells. Scientists think that these cells can contribute to chronic health problems when they accumulate in the body. In younger people, the immune system is more effective at clearing senescent cells from the body through a process called apoptosis, but as we age this process becomes less efficient. As a result, there is an accumulation of senescent cells in different organs in the body, either through increased production or reduced clearance by the immune system. The zombie cells continue to use energy though they do not divide, and often secrete chemicals that cause inflammation, which if persistent for longer periods of time can damage healthy cells leading to chronic diseases.
Identify the odd sentence out and key in the number of that sentence as your answer.
Identify the odd sentence out and key in the number of that sentence as your answer.
The last paragraph of the passage refers to “middle-class, white, professional men”. Which one of the following qualities best describes the connection among them?
Study the following sets of concepts and identify the set that is conceptually closest to the concerns and arguments of the passage.
According to the passage, who or what was an “alienist”?
“Conversely, when a defendant struck officials as unlike themselves, whether by dint of disease, gender, confession, or race, the precariousness of judgments about mental state was exposed.” Which one of the following best describes the use of the word “confession” in this sentence?
Which one of the options below best summarises the passage?
Important Questions from Non Grammar
- In formulating Principle VI (a), the ILC clarified the term "waging of a war of aggression" because:
- The author attributes the growing public frustration with the UN primarily to which pair of continuous failures?
- A primary point of divergence between the US Conservative position and the Secretary-General's Conservative position on security matters, according to the summary is:
- According to the critique's conclusion, the immediate, insurmountable barrier preventing the implementation of any reform, major or minor, is:
- The Secretary-General's 'Agenda for Peace' proposed a specific military capability intended to address the gap between traditional peace-keeping and full military action. This proposed unit was explicitly characterized by the summary as being:
