GDP and Welfare

Correct answer: A. An increase in national output

Economic growth means a sustained increase in the productive capacity and real output of an economy over time. It is commonly assessed through the rise in real national income or real GDP, because real measures remove the effect of price changes. A person’s height, a house’s colour and a shop’s music do not measure the production of the whole economy. Therefore, an increase in national output is the correct macroeconomic indicator.

Correct answer: B. The average income per person

National income measures the total income generated by an economy during a period. Per capita income divides national income by the population and therefore gives an average income per person. It is useful for comparing average economic resources across countries or years, although it does not reveal income distribution or inequality. Hence option B is correct.

Correct answer: D. 550

Net Domestic Product is obtained by deducting depreciation from Gross Domestic Product. Therefore, to recover the gross measure, depreciation must be added back: GDP = NDP + depreciation = 480 + 70 = 550. Subtracting 70 would move in the wrong direction and give 410, while 480 and 70 are only the separate figures supplied in the question.

Correct answer: B. Depreciation

Net Domestic Product is obtained by subtracting depreciation from Gross Domestic Product: NDP = GDP − depreciation. Rearranging gives GDP − NDP = depreciation. Thus, the difference measures the value of capital consumed during production. Exports, wages, and taxes may appear in national accounts, but none of them defines the gross-to-net difference in domestic product.

Correct answer: A. Deduct depreciation

The net version of a national product measure is obtained after removing the value of capital consumed during production. Therefore, Net National Product = Gross National Product − depreciation. Adding depreciation would restore the gross measure rather than produce the net one. Consumption and exports are not the adjustment used for this gross-to-net conversion.

Correct answer: A. By adding depreciation to net domestic product

NDP is GDP after depreciation has been deducted. To reverse that deduction and recover the gross figure, add depreciation: GDP = NDP + depreciation. Subtracting depreciation again would move farther from GDP and give an incorrect smaller value. The remaining options either ignore NDP or fail to use the required gross-net accounting relationship.

Correct answer: C. Both move in opposite directions

Real flow and money flow move in opposite directions in the circular-flow model. For example, goods and services move from firms to households, while the consumption payments for them move from households to firms. Similarly, factor services and factor payments move oppositely.

Correct answer: D. The use of the good

The classification of a good as final or intermediate depends on its intended use, not on its price, colour, or seller. A good purchased for final consumption, investment, or export is final, whereas a good used as an input in producing another good is intermediate. Therefore, the correct basis is the use of the good, making option D correct.

Correct answer: A. ₹3 crore

The service supplied by the domestic company to the foreign customer is a service export of ₹5 crore. The service purchased from the foreign company is a service import of ₹2 crore. Net service exports equal service exports minus service imports: ₹5 crore − ₹2 crore = ₹3 crore. The result is positive because receipts from services sold abroad exceed payments for services bought from abroad. In the expenditure identity, this balance contributes to net exports, X − M.

Correct answer: A. It is an additional reward for labour service

A performance bonus is paid because the employee has supplied labour services during the current accounting period and achieved specified work results. It is therefore an additional part of compensation of employees, just like a salary or wage incentive. It is not a gift, because it is connected with employment, and it is not a capital gain or the proceeds from selling a used good. Thus, option A is correct.

Correct answer: A. NNP = GNP − Depreciation

The correct basic relationship is NNP = GNP − depreciation. GNP is the gross national product, and depreciation measures the part of fixed capital used up during production. Subtracting it converts the gross national measure into a net national measure. Adding depreciation would move in the wrong direction, while the GDP-minus-imports and NDP-minus-tax expressions do not define NNP. Therefore, option A is correct.

Correct answer: A. Indirect taxes and subsidies

GDP at market price values final output at the prices actually paid by purchasers. These prices include indirect taxes and are reduced by subsidies; together they form net indirect taxes (NIT = indirect taxes − subsidies). The relationship is GDP at market price = GDP at factor cost + NIT. Personal taxes, transfer payments, and depreciation are not the relevant market-price adjustment.

Correct answer: A. It does not fully reflect income distribution and non-market factors

GDP measures the value of production, but it does not show how income is distributed and generally leaves out factors such as unpaid household work, leisure, and environmental quality. It is therefore useful for measuring output, but not a complete measure of welfare.

Correct answer: A. Because it does not fully show distribution and non-market activities

GDP measures the monetary value of current market production, but welfare also depends on factors such as income distribution, leisure, health, safety, environmental quality, and unpaid household work. A higher GDP can therefore coexist with inequality or serious social and environmental costs.

Correct answer: A. ₹−50 crore

Net exports are calculated by subtracting imports from exports: Net Exports = Exports − Imports = ₹400 crore − ₹450 crore = −₹50 crore. The negative result indicates a trade deficit because the value of imports is greater than the value of exports. Therefore, option A is correct; ₹50 crore shows only the difference without its economically important negative sign.

Correct answer: A. Average domestic output or income per person

Per capita GDP is calculated by dividing a country’s GDP by its population. It gives an approximate average of domestic production or income available per person and is useful for comparing average economic performance across countries or time. However, it does not reveal how income is distributed among people.

Correct answer: A. 40 rupees

Per capita GDP is calculated using the formula: total GDP divided by total population. Therefore, 18,000 crore rupees ÷ 450 crore people = 40 rupees per person. The unit crore cancels because it appears in both the numerator and denominator. Hence, option A is correct; the other values result from incorrect division or misplaced zeros.

Correct answer: A. Because GDP does not show income distribution

GDP measures the total market value of final goods and services produced in an economy, but it does not show who receives the resulting income. A high GDP may coexist with severe inequality if most income is concentrated among a small group. Therefore, poverty and welfare must also be assessed using distributional and social indicators.

Correct answer: A. Income inequality may be high

GDP measures the total value of final goods and services produced, but it does not show how that income or output is distributed. A high GDP may coexist with severe inequality, poor access to health and education, unemployment, or environmental damage. Thus, high GDP alone cannot guarantee high welfare, making option A correct.

Correct answer: A. Because many external costs do not appear in market value

GDP records the market value of measured final production, not every social cost created during production or consumption. Pollution is a negative externality: its health, environmental, and cleanup costs may not be fully included in market prices. Consequently, GDP can remain high while welfare falls, so option A is correct.

Correct answer: A. Reliable data is not available

Illegal activities are generally hidden from official authorities, so transactions may not be reported and reliable records are difficult to obtain. Since GDP estimation depends on production, income, or expenditure data, missing information can lead to undermeasurement. This is a measurement limitation rather than proof that the activity has no economic value; therefore, option A is correct.

Correct answer: A. Because it is an unpaid non-market service

GDP generally records market production and certain non-market output that can be valued in the national accounts. Unpaid tutoring provided directly by a volunteer has no market transaction or payment, so this personal service is generally outside the measured production boundary. Its exclusion does not mean it has no social value.

Correct answer: A. GDP ignores income distribution

GDP is an aggregate measure of the value of production or income generated in an economy. It does not show how that income is distributed among households or groups. Therefore, GDP can increase while most people receive little or no benefit if gains are concentrated among a small group. Measures such as inequality indicators, poverty rates, and per-capita distribution are needed to assess welfare more fully. Option A is correct.

Correct answer: B. 900 crore rupees

The relationship is NDP = GDP − Depreciation. To find GDP, rearrange it as GDP = NDP + Depreciation. Substituting the given values gives GDP = 840 + 60 = 900 crore rupees. Therefore, option B is correct. Depreciation is added when moving from a net measure back to the corresponding gross measure.

Correct answer: A. To measure output at constant prices

A base year provides the reference prices used to calculate real GDP and compare output across different years. Valuing current quantities at base-year prices holds prices constant, so changes in measured GDP more closely reflect changes in physical production rather than inflation. Therefore, option A is correct. Tax collection, imports, and population counting may be studied separately but are not the main purpose of a base year.