Gini Index

(noun)

A measure of income distribution.

Related Terms

Examples of Gini Index in the following topics:

  • Measurement Problems

    • The most popular measurement of income inequality is the Gini index, which leverages a simple scale of 0-1 to derive deviance from a given perfect equality point.
    • If a system demonstrates a Gini index of 0, the implication is that income differences among any individuals in the population will be essentially zero, while a measurement of 1 is complete income disparity.
    • That bottom 10% (assuming inflation has been accounted for) will be gaining wealth and purchasing power in absolute terms despite the fact that the Gini index will be much worse.
    • The Gini index still has important implications about relative inequality in this circumstance, but it neglects to point out positive gains.
    • Taking into account the problems with the Gini ratio, a concept like the poverty line does an effective job in offsetting this variability.

  • Defining and Measuring Income Inequality

    • Gini Index: One of the most commonly used income inequality metric is the Gini Index, which uses a straightforward 0-1 scale to illustrate deviance from perfect equality of income.
    • The derivation of the Gini ratio is found via Lorenz curves, or more specifically, the ratio of two areas in a Lorenz curve diagram.
    • This demonstrates the Gini ratio across the globe, with some interesting implications for advanced economies like the U.S.
    • Theil Index:The Theil Index takes a slightly different approach than the rest, identifying entropy within the system.
    • Hoover Index: Often touted as the simplest measurement to calculate, the Hoover Index derives the overall amount of income in a system and divides it by the population to create the perfect proportion of distribution in the system.

  • Price Indices and the Rate of Change of Prices

    • Most often, the base period for an index is a single year and normalized.
    • The Laspeyres index and the Paasche index are two price indexes that attempt to compensate for this difficulty.
    • Using the example above, the base period index would be 5*10+8*1.5+2*40=142, and the current period index would be 5*12+8*2+2*45 = 166.
    • Again, using the above example, the base period index would be 4*10+6*1.5+2*40=129, and the current period index would be 4*12+6*2+2*45=150.
    • Two common price indices are the Consumer Price Index (CPI) and the Producer Price Index (PPI).

  • Measuring Inflation

    • The inflation rate is widely calculated by calculating the movement or change in a price index, usually the consumer price index (CPI) The consumer price index measures movements in prices of a fixed basket of goods and services purchased by a "typical consumer".
    • CPI is usually expressed as an index, which means that one year is the base year.
    • The index for another year (say, year 1) is calculated by $CPI_{year 1}=({Basket Cost}_{year 1}/{Basket Cost}_{base year}) * 100$
    • The price index is (212/207)*100, or 102.4.

  • Defining and Calculating CPI

    • Goods and services are divided into categories, sub categories, and sub indexes.
    • All of the information is combined to produce the overall index of consumer expenditures.
    • The CPI can be used to index the real value of wages, salaries, pensions, and price regulation.
    • The graph shows the consumer price index in the United States from 1913 - 2004.
    • The x-axis indicates year, the left y-axis indicates the Consumer Price Index, and the right y-axis indicates annual percentage change in Consumer Price Index, which can be used to measure inflation.

  • The GDP Deflator

    • The GDP deflator is a price index that measures inflation or deflation in an economy by calculating a ratio of nominal GDP to real GDP.
    • It is a price index that measures price inflation or deflation, and is calculated using nominal GDP and real GDP.
    • Like the Consumer Price Index (CPI), the GDP deflator is a measure of price inflation/deflation with respect to a specific base year.

  • Market Power

    • Measurement of market power is often accomplished with concentration ratios or the Herfindahl-Hirschman Index (HHI).
    • The Herfindahl-Hirschman Index (HHI) is a measure of the size of firms in relation to the industry, and an indicator of the amount of competition among them.

  • Using Monetary Policy to Target Inflation

    • Increases in inflation, measured by changes in the consumer price index (CPI), are not necessarily coupled to any factor internal to country's economy.

  • Defining and Measuring Poverty

    • One interesting perspective is the Multidimensional Poverty Index (MPI).
    • This index was created in 2010 by the Oxford Poverty & Human Development Initiative alongside the United Nations Development Programme.

  • The Federal Funds Rate

    • In fact, many mortgages and credit card interest rates are indexed to the Federal Funds rate - a homeowner might pay an adjustable interest rate that is set at the level of the Federal Funds rate plus four percent, for example.