When people are poor, they need their income for subsistence. Due to this, they are unable to invest in human capital, physical capital and their own health. As a result, investments in the economy are reduced, resulting in a less productive workforce.

The relationship between poverty and the economy is a complex, cyclical feedback loop often described as the "Poverty Trap." Economically, poverty acts as a significant drag on Gross Domestic Product (GDP) because it represents a vast amount of "underutilized human capital." When a portion of the population cannot afford education, healthcare, or basic nutrition, their productivity is stifled, which in turn limits the nation's overall economic output. Conversely, a sluggish economy with high unemployment and low wage growth is the primary driver of increased poverty rates. This relationship is further strained by the "Multiplier Effect" of poverty: impoverished individuals spend a higher percentage of their income on immediate survival needs rather than investing in assets or savings, which slows long-term capital formation. Economists argue that reducing poverty isn't just a social imperative but a strategic economic one; by lifting people out of poverty, you increase the consumer base, boost tax revenues, and reduce the public expenditure required for social safety nets and emergency healthcare.