In which situation would growth in nominal GDP be an especially misleading signal of welfare improvement?
Answer and explanation
Correct answer: When most of the growth is caused by high inflation
Nominal GDP is valued at current prices, so its growth combines changes in physical output with changes in the price level. If most growth comes from rapid inflation, the quantity of goods and services may have risen little or even fallen in real terms. Option B is therefore correct. Stable prices with higher output are less misleading, while population and public-service changes require separate analysis.
Frequently asked questions
What is the correct answer to this question?
When most of the growth is caused by high inflation
Why is this the correct answer?
Nominal GDP is valued at current prices, so its growth combines changes in physical output with changes in the price level. If most growth comes from rapid inflation, the quantity of goods and services may have risen little or even fallen in real terms. Option B is therefore correct. Stable prices with higher output are less misleading, while population and public-service changes require separate analysis.
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.
