What is the main caution in treating real GDP growth as growth in living standards?
Answer and explanation
Correct answer: It does not automatically reflect income distribution and population change
Real GDP measures the volume of final goods and services using constant prices, so it removes much of the effect of inflation. However, total real GDP does not show how output is distributed, how population has changed, or whether the average person is better off. Per-capita real GDP and distributional, social and environmental indicators are therefore needed. Option A is correct; the other statements contradict what GDP measures.
Frequently asked questions
What is the correct answer to this question?
It does not automatically reflect income distribution and population change
Why is this the correct answer?
Real GDP measures the volume of final goods and services using constant prices, so it removes much of the effect of inflation. However, total real GDP does not show how output is distributed, how population has changed, or whether the average person is better off. Per-capita real GDP and distributional, social and environmental indicators are therefore needed. Option A is correct; the other statements contradict what GDP measures.
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.
