If a country's real GDP rises but a large share of income goes only to the top-income group what is the most appropriate conclusion?
Answer and explanation
Correct answer: Broad public welfare will not necessarily rise
The governing concept is the distinction between economic growth and broad welfare. Real GDP measures the inflation-adjusted value of production, but it does not show how income is distributed among households. If most additional income goes to the top group, average output may rise while many people experience little improvement in purchasing power or living conditions. Therefore broad welfare will not necessarily rise. Equal income growth and automatic elimination of poverty do not follow from GDP growth alone.
Frequently asked questions
What is the correct answer to this question?
Broad public welfare will not necessarily rise
Why is this the correct answer?
The governing concept is the distinction between economic growth and broad welfare. Real GDP measures the inflation-adjusted value of production, but it does not show how income is distributed among households. If most additional income goes to the top group, average output may rise while many people experience little improvement in purchasing power or living conditions. Therefore broad welfare will not necessarily rise. Equal income growth and automatic elimination of poverty do not follow from GDP growth alone.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
