Economic Mobility The relative income of a child (low, medium, or high) generally

Chapter 8, Problem 88

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Economic Mobility The relative income of a child (low, medium, or high) generally depends on the relative income of the childs parents. The matrix P, given by Parents Income L M H L M Childs income H P = C 0.4 0.2 0.1 0.5 0.6 0.5 0.1 0.2 0.4S is called a left stochastic transition matrix. For example, theentry means that 50% of the children of lowrelative income parents will transition to the medium level ofincome. The diagonal entry represents the percent ofchildren who remain in the same income level as theirparents. Assuming that the transition matrix is valid fromone generation to the next, compute and interpret