Explain how 'distribution of gross domestic product' is a limitation in taking gross domestic product as an index of welfare.
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?
Average propensity to save = S/Y = (Y-C)/Y
Consumer expenditure, C = 64
Income, Y= 80
APS = (80-64)/80 = 0.2
Average propensity to consume = C/Y
Increased Consumer expenditure = 78
Increased income Y = 100
APC = 78/100 = 0.78
Marginal Propensity to consume (MPC)= Change in consumer expenditure /change in income
= △C/△Y = (78-64)/(100-80) = 14/20= 0.7
Explain the relationship between investment multiplier and marginal propensity to consume.