Explain how 'distribution of gross domestic product' is a limitation in taking gross domestic product as an index of welfare.
GDP is the sum total of value of goods and services created within the geographical boundary of a country in a particular year. It gets distributed among the people as incomes. But higher level of GDP of a country cannot be treated as an index of greater well-being of the people of that country due to many reasons. 'Distribution of gross domestic product is one of the reasons why GDP cannot be taken as an index of welfare. If the GDP of the country is rising, the welfare may not rise as a consequence. This is because the rise in GDP may be concentrated in the hands of very few individuals or firms. For the rest, the income may in fact have fallen. As such, a welfare of the people may not rise as much as the rise in GDP.
Given that national income is Rs.80 crore and consumption expenditure Rs.64 crore, find out average propensity to save. When income rises to Rs.100 crore and consumption expenditure to Rs.78 crore, what will be the average propensity to consume and the marginal propensity to consume?
Explain the relationship between investment multiplier and marginal propensity to consume.