In which situation would growth in nominal GDP least reliably indicate an increase in welfare?
Answer and explanation
Correct answer: When growth is mainly due to a rise in the general price level
The governing concept is the distinction between nominal and real GDP. Nominal GDP equals the value of current production at current prices, so it can rise solely because the general price level increases. If real output does not improve, purchasing power and actual welfare may not increase. Therefore, option D is correct. Options A, B, and C describe real production or social improvements that provide stronger evidence of welfare gains.
Frequently asked questions
What is the correct answer to this question?
When growth is mainly due to a rise in the general price level
Why is this the correct answer?
The governing concept is the distinction between nominal and real GDP. Nominal GDP equals the value of current production at current prices, so it can rise solely because the general price level increases. If real output does not improve, purchasing power and actual welfare may not increase. Therefore, option D is correct. Options A, B, and C describe real production or social improvements that provide stronger evidence of welfare gains.
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.
