Author Question: On the Lorenz curve graph, the area between the line of equality and the Lorenz curve is 2,500, and ... (Read 500 times)

xroflmao · **on:** Jun 29, 2018

On the Lorenz curve graph, the area between the line of equality and the Lorenz curve is 2,500, and the entire area beneath the line of equality is 5,000. What does the Gini ratio equal?

What will be an ideal response?

Question 2

The interest rate is 5 percent. How does 500 to be received a year from today compare in value to 500 right now?

What will be an ideal response?

Anton · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The Gini ratio is the ratio of the area between the line of equality and the Lorenz curve to the entire area beneath the line of equality. So the Gini ratio is 2,500/5,0000 = 0.5.

Answer to Question 2

With an interest rate of 5 percent, 500 deposited in the bank right now will be worth 525 one year from today. (To calculate this amount, the future value is 500(1 + r) = 500(1 + .05 ) = 525.) The 500 received one year from today, however, has a present value of 500/(1 + r) = 500/(1 + .05 ) = 476.19. So, 500 today is worth more than 500 a year from now.