If real GDP rises but income distribution becomes highly unequal, what is the most appropriate conclusion about welfare?
Answer and explanation
Correct answer: Welfare cannot be determined from GDP alone
The governing economic concept is the limitation of GDP as a welfare indicator. Real GDP measures inflation-adjusted production or average real income, but it does not show who receives that income, nor does it fully capture health, leisure, environmental quality, or security. Hence option C is correct: higher GDP may coexist with unequal gains, so welfare cannot be determined from GDP alone. Option A is too certain, B is not necessarily true, and D wrongly denies any relationship.
Frequently asked questions
What is the correct answer to this question?
Welfare cannot be determined from GDP alone
Why is this the correct answer?
The governing economic concept is the limitation of GDP as a welfare indicator. Real GDP measures inflation-adjusted production or average real income, but it does not show who receives that income, nor does it fully capture health, leisure, environmental quality, or security. Hence option C is correct: higher GDP may coexist with unequal gains, so welfare cannot be determined from GDP alone. Option A is too certain, B is not necessarily true, and D wrongly denies any relationship.
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.
