The FGT0 measure does not reflect the depth of poverty below the poverty line. [6] (i) Suggest a specific income transfer within this economy that demonstrates this limitation of FGT0. Take $1 from...

The FGT0 measure does not reflect the depth of poverty below the poverty line. [6] (i) Suggest a
specific
income transfer within this economy that demonstrates this limitation of FGT0.

Take $1 from person 2 and give it to person 4. This makes person 2 poorer in absolute terms, but does not change FGT0.

(ii) Compute FGT0 after the transfer.

Still 3/6.

(iii)Discuss why this feature limits how useful FGT0 is as a measure of poverty.

FGT0 is not able to capture changes among the poor. For example, the desperately poor could become much better off and, as long as they weren’t so much better off that they cross the poverty line, we would see no improvement in poverty as measured by FGT0.