If the quality of a public service improves while its cost remains unchanged, what measurement problem may arise in GDP?
Answer and explanation
Correct answer: The full value of the quality improvement may not appear in GDP
Many non-market government services are valued in national accounts using their cost of production, such as wages and operating expenses. If the service becomes better but its measured cost does not change, the improvement may not increase recorded GDP proportionately. Thus option C is correct. Option A is too absolute, B is false because public services are included, and D does not necessarily follow.
Frequently asked questions
What is the correct answer to this question?
The full value of the quality improvement may not appear in GDP
Why is this the correct answer?
Many non-market government services are valued in national accounts using their cost of production, such as wages and operating expenses. If the service becomes better but its measured cost does not change, the improvement may not increase recorded GDP proportionately. Thus option C is correct. Option A is too absolute, B is false because public services are included, and D does not necessarily follow.
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.
