If output rises but real income does not increase because of inflation, what may happen to welfare?
Answer and explanation
Correct answer: Improvement in purchasing power may remain limited
Real income measures the purchasing power of income after considering changes in prices. If output or nominal income rises but inflation absorbs that increase, households may be unable to buy substantially more goods and services. Consequently, welfare and purchasing power may improve little or not at all. Option B is correct; the other choices are extreme, unrelated, or mathematically inconsistent with rising output.
Frequently asked questions
What is the correct answer to this question?
Improvement in purchasing power may remain limited
Why is this the correct answer?
Real income measures the purchasing power of income after considering changes in prices. If output or nominal income rises but inflation absorbs that increase, households may be unable to buy substantially more goods and services. Consequently, welfare and purchasing power may improve little or not at all. Option B is correct; the other choices are extreme, unrelated, or mathematically inconsistent with rising output.
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.
