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If GDP rises but food prices increase faster than the incomes of poor households, what may happen?

Answer and explanation

Correct answer: The real welfare of the poor may fall

The governing concept is real purchasing power: it depends on income after considering the prices of goods. If poor households’ incomes rise more slowly than food prices, the quantity of necessities they can buy decreases. Thus their real income and likely welfare may fall, even though aggregate GDP has increased. Option A confuses nominal income with real purchasing power; C and D have no economic basis.

Related tags

Food PricesReal IncomePoor HouseholdsWelfareGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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