Reference no: EM132473226

Chile, known as one of Latin America's wealthiest, most stable and peaceful countries, is in the grip of a political and economic upheaval with thousands of people protesting since Oct. 6. However, Chile remains the most unequal country in the largely-developed Organization for Economic Co-operation and Development (OECD), with an income gap 65% wider than the OECD average. Half of Chilean workers earn $550 a month or less, according to the National Statistics Institute. A 2018 government study showed that the income of the richest was 13.6 times greater than those of the poorest.

Suppose Chile's  economy in 2000: Y=AK^0.4L^0.6 & country's national income was $170billion in 2000, we get that Total labor income = $102 billion.Total capital income = $68 billion.

Chile's economy in 2018: Y= AK^0.6L^0.4. Moreover, the country's national income increased to $200billion in 2018. Total labor income = $120 billion.Total capital income = $80 billion.

Question: Using the above info calculated, explain how the changes in the production function representing the Chile's economy during 2000-2018 may have led to high income inequality in the country.