If monetary GDP rises because prices increase while output remains unchanged what can be said about real welfare?
Answer and explanation
Correct answer: A monetary rise alone does not prove an increase in real welfare
Nominal or monetary GDP can increase simply because prices are higher. If the quantity of goods and services produced remains unchanged, real GDP has not necessarily increased. Since real welfare is more closely related to actual output, purchasing power, distribution and living conditions, a price-driven rise alone cannot prove that welfare has improved. Thus option B is correct.
Frequently asked questions
What is the correct answer to this question?
A monetary rise alone does not prove an increase in real welfare
Why is this the correct answer?
Nominal or monetary GDP can increase simply because prices are higher. If the quantity of goods and services produced remains unchanged, real GDP has not necessarily increased. Since real welfare is more closely related to actual output, purchasing power, distribution and living conditions, a price-driven rise alone cannot prove that welfare has improved. Thus 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.
