Many people are concerned about changes in the distribution of income.

1. Is there greater inequality in the distribution of annual income or in the distribution of annual consumption? Which distribution is usually more relevant to concerns about inequality?

2. What is “churning” of the income distribution? How does the extent of churning influence your interpretation of the distribution of annual incomes? All else equal, how does the extent of churning affect the size of the credit market?

3. As you know, the distribution of income has become less equal over the last 30 years. What is leading hypothesis that explains this trend? Explain briefly.

4. Empirically speaking, at least two other factors appear capable of explaining at least a portion of the trend in wage inequality. Identify and explain one of them.