Comparing Income Inequality in Two Economic Scenarios
Consider two different economic scenarios in a simplified model with one lender and five borrowers. In this model, the lender's income share (s) is the ratio of the interest rate (r) to the profit rate (R), and the Gini coefficient (g), a measure of inequality, is calculated as g = (6s - 1)/5.
- Scenario A: The interest rate is 10% and the profit rate is 20%.
- Scenario B: The interest rate is 15% and the profit rate is 25%.
Based on your calculations, which scenario exhibits greater income inequality? Justify your answer by showing the Gini coefficient for each scenario.
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