Why is the GDP deflator not a complete indicator of economic welfare?
Answer and explanation
Correct answer: It measures only price changes
The GDP deflator is a price index: it compares nominal GDP with real GDP to indicate changes in the prices of domestically produced final output. It does not measure how income is distributed, environmental damage, leisure, health, or the quality of life. Therefore option A best states its limited purpose. Options B and C incorrectly claim comprehensive welfare measurement, while D confuses a price index with a demographic measure.
Frequently asked questions
What is the correct answer to this question?
It measures only price changes
Why is this the correct answer?
The GDP deflator is a price index: it compares nominal GDP with real GDP to indicate changes in the prices of domestically produced final output. It does not measure how income is distributed, environmental damage, leisure, health, or the quality of life. Therefore option A best states its limited purpose. Options B and C incorrectly claim comprehensive welfare measurement, while D confuses a price index with a demographic measure.
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.
