What can be concluded about real welfare if nominal GDP rises only because prices rise?
Answer and explanation
Correct answer: An increase in real welfare is not proved
Nominal GDP is measured at current prices, so it can rise merely because the general price level has increased. If quantities of goods and services remain unchanged, real GDP may not increase at all. Since welfare depends more on real output, purchasing power, distribution, and quality of life than on money values alone, a nominal increase cannot prove greater real welfare. Thus option B is correct.
Frequently asked questions
What is the correct answer to this question?
An increase in real welfare is not proved
Why is this the correct answer?
Nominal GDP is measured at current prices, so it can rise merely because the general price level has increased. If quantities of goods and services remain unchanged, real GDP may not increase at all. Since welfare depends more on real output, purchasing power, distribution, and quality of life than on money values alone, a nominal increase cannot prove greater real welfare. Thus option B is correct.
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.
