In a city house rents rise increasing the monetary value of housing services while actual living quality remains unchanged. What caution is needed in welfare analysis?
Answer and explanation
Correct answer: Do not always treat a higher monetary value as more real service
The governing concept is the distinction between nominal value and real output. A rise in rent can increase the money value assigned to housing services without improving their quantity, quality, safety, or comfort. Therefore, welfare analysis should adjust for price changes and examine real services. Option A is correct; B is false because measured rent can enter GDP, while C and D confuse price or one indicator with actual welfare.
Frequently asked questions
What is the correct answer to this question?
Do not always treat a higher monetary value as more real service
Why is this the correct answer?
The governing concept is the distinction between nominal value and real output. A rise in rent can increase the money value assigned to housing services without improving their quantity, quality, safety, or comfort. Therefore, welfare analysis should adjust for price changes and examine real services. Option A is correct; B is false because measured rent can enter GDP, while C and D confuse price or one indicator with actual welfare.
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.
