If GDP rises but a large share of income goes as profits to foreign-owned companies, which measure may be useful for residents' welfare?
Answer and explanation
Correct answer: National income received by residents
GDP measures production within a country's domestic territory, regardless of who owns the producing firms. If foreign-owned companies send a large share of their profits abroad, domestic production may rise without a comparable rise in income accruing to residents. A resident-based national income measure, such as national income after considering income flows with the rest of the world, may therefore better reflect residents' economic benefit. Option B is correct.
Frequently asked questions
What is the correct answer to this question?
National income received by residents
Why is this the correct answer?
GDP measures production within a country's domestic territory, regardless of who owns the producing firms. If foreign-owned companies send a large share of their profits abroad, domestic production may rise without a comparable rise in income accruing to residents. A resident-based national income measure, such as national income after considering income flows with the rest of the world, may therefore better reflect residents' economic benefit. Option B is correct.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
