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When may most households' real income fall even though per capita GDP rises?

Answer and explanation

Correct answer: When income growth is concentrated in a very small high-income group

Per capita GDP is an average: total real GDP is divided by population. A small group with exceptionally large income gains can raise the average even if the majority experience falling real incomes. This is the limitation of using an average without examining distribution and household-level data. C describes that situation. Equal income growth, broad employment growth and falling prices would generally support, rather than imply, a fall in most households’ real income.

Related tags

Per Capita GdpIncome ConcentrationHousehold IncomeGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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