Y7

Consider the economy of Canada in 1950 and in 2020. In 1950, the Gini coeffi- cient was equal to 0.2 and the bottom 20% of individuals earned 12% of total GDP, Y1950 = $10 million. In 2020, the Gini coefficient rose to 0.5, with the bottom 20% of individuals earning 3% of GDP. Assume the following social welfare function, where y20 is the consumption of an individual at the 20th percentile of income, yso is for an individual at the 50th percentile of income, and u(y) = log(y). W = mintu(y20), u(450), u(ygo)} a. Find the GDP required in 2020, Y2020 such that the overall social welfare would be the same in 1950 and 2020. b. What is the intuition behind this result