Why does an increase in NNP not always mean that economic welfare has increased?
Answer and explanation
Correct answer: Environmental damage and inequality may not be reflected
NNP is a monetary measure of net production, but welfare is broader than measured income. NNP may rise because production increases even when pollution, congestion, resource depletion, or unsafe working conditions worsen. It also does not show how income is distributed; most gains may go to a small group. Therefore, environmental quality and distribution must be considered before concluding that welfare has improved.
Frequently asked questions
What is the correct answer to this question?
Environmental damage and inequality may not be reflected
Why is this the correct answer?
NNP is a monetary measure of net production, but welfare is broader than measured income. NNP may rise because production increases even when pollution, congestion, resource depletion, or unsafe working conditions worsen. It also does not show how income is distributed; most gains may go to a small group. Therefore, environmental quality and distribution must be considered before concluding that welfare has improved.
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.
