Question

When does per capita income increase ?

• A. When the growth rate of national income is less than the population growth rate.
• B. When the growth rate of national income is equal to the population growth rate.
• C. When the growth rate of national income is more than the population growth rate.
• D. When the per capita income remains constant.

Answer 1

Answer:

C. When the growth rate of national income is more than the population growth rate.

Per capita income

• Among development indices, per capita income was considered the simplest and was popularly used in the past. This is a conventional index of development. Per capita income is calculated by dividing the national income by population
  

  

As per this index, two aspects must be analyzed in order to find out whether a nation has achieved economic development. They are:

1. Growth rate of national income
   

2. Population growth rate

• Per capita income increases only when the growth rate of national income is more than the population growth rate.

• Increase in per capita income is an index of development.

• Per capita income helps in assessing the economic growth of a country as compared to the previous year.

• It is also useful in comparing the economic growth of different countries.

• Per capita income is an average income.

• For example, assume that the per capita income of a country is Rs. 40,000. This does not mean that each individual of the country receives an income of Rs. 40,000.
  

• While calculating economic development on the basis of per capita income. It cannot be claimed that improvement in the quality of living has been attained if the rich / poor disparity persists.

• Per capita income as a development index ignores factors like education, availability of nutritious food and healthcare facilities that improve the quality of living.
  

• Concerned only with economic growth, per capita income as a development index does not take in to account social welfare and the equitable distribution of income