Why is real GDP not a complete measure of economic welfare?
Answer and explanation
Correct answer: It does not fully reflect income distribution and non-market activities.
Real GDP is useful because it measures the value of domestic output at constant prices, thereby removing much of the effect of inflation. However, welfare also depends on how income is distributed, unpaid household work, leisure, environmental quality, health and safety. Real GDP does not fully capture these dimensions. Therefore option B is correct; A, C and D contradict the meaning or use of real GDP.
Frequently asked questions
What is the correct answer to this question?
It does not fully reflect income distribution and non-market activities.
Why is this the correct answer?
Real GDP is useful because it measures the value of domestic output at constant prices, thereby removing much of the effect of inflation. However, welfare also depends on how income is distributed, unpaid household work, leisure, environmental quality, health and safety. Real GDP does not fully capture these dimensions. Therefore option B is correct; A, C and D contradict the meaning or use of real GDP.
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.
