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What is meant by functional distribution of income in macroeconomic analysis? Explain how this form of distribution of income can generate income inequality

Economics Dec 08, 2020

What is meant by functional distribution of income in macroeconomic analysis?

Explain how this form of distribution of income can generate income inequality.

Why is equality a controversial goal in macroeconomic analysis?

Expert Solution

According to macroeconomics analysis, the functional distribution of income refers to the sum of revenue paid to different households. Thus, national income is divided among capitalists, workers, and landowners instead of according to the size distribution of revenue. The size distribution of income is used if revenue is classified according to the size of every household's income despite the income sources. Therefore, functional income distribution can yield income inequality since an individual may receive revenue from more than a single source. It doesn't matter if one is getting richer or the poor becoming poorer. Equality plays an integral part in macroeconomics since inequality bars the economy from achieving sustainable economic growth goals.

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