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If prices of pollution-causing goods rise, the GDP deflator may increase, but what does this not prove?

Answer and explanation

Correct answer: Economic welfare has increased

A rise in the GDP deflator indicates that the average price of measured domestic final output has increased. It says nothing by itself about whether people are better off. If higher prices are associated with pollution, health risks, or environmental damage, welfare may even decline despite a higher measured price level. Hence option A is correct. The other statements are compatible with what a higher deflator can indicate.

Related tags

PollutionEconomic WelfareGdp DeflatorEnvironmental CostsGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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