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.
Frequently asked questions
What is the correct answer to this question?
When income growth is concentrated in a very small high-income group
Why is this the correct answer?
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.
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.
