What is the effect on welfare analysis if the black economy is not fully captured in NNP?
Answer and explanation
Correct answer: The official picture of income and welfare may remain incomplete
The black economy includes unreported production, income, and transactions that are absent from official records. If these activities are not captured in NNP, measured national income will be lower than the actual income generated. Consequently, comparisons of living standards and welfare based only on NNP may be incomplete or misleading. NNP is therefore a useful indicator, but it does not fully measure welfare.
Frequently asked questions
What is the correct answer to this question?
The official picture of income and welfare may remain incomplete
Why is this the correct answer?
The black economy includes unreported production, income, and transactions that are absent from official records. If these activities are not captured in NNP, measured national income will be lower than the actual income generated. Consequently, comparisons of living standards and welfare based only on NNP may be incomplete or misleading. NNP is therefore a useful indicator, but it does not fully measure 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.
