Numerical Example: Gini Increase Due to Borrower Exclusion
To illustrate the impact of credit market exclusion, consider the one-lender, five-borrower model where the lender's income share (s) is 2/3. In the scenario where all borrowers participate, the Gini coefficient is 0.6. However, when two borrowers are excluded and earn no income, the Gini coefficient increases to 0.73, demonstrating a significant rise in economic inequality as a result of the exclusion.
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Introduction to Microeconomics Course
CORE Econ
Ch.9 Lenders and borrowers and differences in wealth - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
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Calculating the Gini Coefficient in the Two-Borrower Exclusion Model
Numerical Example: Gini Increase Due to Borrower Exclusion
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Consider a simplified economy with one lender and five potential borrowers. Initially, all five borrowers receive loans and earn an income from their respective projects. Now, imagine a change where the lender can only provide loans to three of the borrowers. The two excluded borrowers are unable to undertake their projects and consequently earn zero income. Assuming the total income generated by the three active projects is distributed only among the lender and those three borrowers, what is the direct consequence of this change on the overall income distribution in this six-person economy?
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In a simplified economic model with one lender and five potential borrowers, a scenario arises where only three borrowers can secure loans for their projects. Match each type of individual in this six-person economy to their corresponding economic outcome.
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Condition for Lender's Highest Income in the Two-Borrower Exclusion Model
Learn After
Consider an economy with one lender and five prospective borrowers. Initially, all individuals are able to participate in the credit market, resulting in a Gini coefficient of 0.6. In an alternative scenario where two of the five borrowers are excluded from the market and earn zero income, the Gini coefficient for the economy increases to 0.73. Based on this information, what would be the most likely outcome for the Gini coefficient if only one borrower were excluded from the market, with all others participating as before?
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Evaluating Microfinance Policy Impact on Inequality
In a simplified economy consisting of one lender and five potential borrowers, the lender is entitled to a 2/3 share of the total income generated from any successful loans. Consider a scenario where two of the five borrowers are completely excluded from borrowing and thus earn no income. In this situation, the lender's absolute income amount is the same as it would be if all five borrowers were able to secure loans.
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In a model with one lender and five potential borrowers, the lender receives a 2/3 share of the income from each loan. When two borrowers are excluded from the credit market and earn zero income, the individual income of each of the three remaining borrowers who do secure a loan is lower than it would have been in the scenario where all five borrowers secured loans.
In an economic model with one lender and five potential borrowers, different market conditions can lead to varying levels of income inequality. Match each of the following scenarios to its most likely corresponding Gini coefficient, where a higher value indicates greater inequality.
In a small economy with one lender and five prospective borrowers, a policy change results in two borrowers being completely excluded from accessing credit, causing them to earn zero income. This change leads to the economy's Gini coefficient rising from 0.60 to 0.73. Which of the following statements best explains the fundamental reason for this increase in measured inequality?
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