Q. 234.0( 10 Votes )

Distinguish between total income and average income. Which one is a better incident of economic development and why?

Answer :

The total income of a country or Gross National Income (GNI) is the total domestic and foreign income claimed by residents of a country. The average income of a country or per capita income is the total income of the country divided by its total population. Thus, while total income is an absolute measure for the size of the economy in a country, average income is the average which provides the development level of the said economy.

In development, the average value is often used to compare different countries with respect to their income. Since different countries have different populations, total income does not work as a good comparative measure. Average value of income is derived by dividing the total income of the country by the total population and is also called per capita income. Although average income is used for comparison purposes, it is not an absolute measure as it can hide disparities as it does not state whether the income distribution is equitable or not. In spite of its limitations, average income remains a better indicator of economic development in a country over total income.

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