If real GDP rises but income distribution becomes more unequal, what is the most appropriate conclusion about welfare?
Answer and explanation
Correct answer: Welfare change cannot be determined from GDP alone
The governing concept is the limitation of GDP as a welfare measure. Rising real GDP shows that inflation-adjusted output has increased, but it does not reveal who receives the additional income or whether distribution has worsened. Greater inequality may reduce the benefits reaching many households, while other welfare factors are also omitted. Therefore C is correct. A and B claim certainty without enough evidence, and D is wrong because real GDP remains a relevant, though incomplete, indicator.
Frequently asked questions
What is the correct answer to this question?
Welfare change cannot be determined from GDP alone
Why is this the correct answer?
The governing concept is the limitation of GDP as a welfare measure. Rising real GDP shows that inflation-adjusted output has increased, but it does not reveal who receives the additional income or whether distribution has worsened. Greater inequality may reduce the benefits reaching many households, while other welfare factors are also omitted. Therefore C is correct. A and B claim certainty without enough evidence, and D is wrong because real GDP remains a relevant, though incomplete, indicator.
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.
