If income rises but prices also rise by the same extent, why should conclusions about welfare be drawn carefully in macroeconomics?
Answer and explanation
Correct answer: Because nominal income does not clearly show real purchasing power
An increase in nominal income does not necessarily mean an increase in real income. If prices rise by the same proportion, the quantity of goods and services that households can buy may remain unchanged. Welfare also depends on distribution, public services, health, and other factors, so income alone is insufficient.
Frequently asked questions
What is the correct answer to this question?
Because nominal income does not clearly show real purchasing power
Why is this the correct answer?
An increase in nominal income does not necessarily mean an increase in real income. If prices rise by the same proportion, the quantity of goods and services that households can buy may remain unchanged. Welfare also depends on distribution, public services, health, and other factors, so income alone is insufficient.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates.
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