Why is the GDP deflator not a complete measure of economic welfare?
Answer and explanation
Correct answer: It measures price changes and does not show aspects such as income distribution
The GDP deflator is a broad price index for domestically produced final goods and services; it measures the relationship between nominal and real GDP. Economic welfare is wider than prices or output. It also depends on income distribution, leisure, environmental quality, health, safety, and the quality of public services. The deflator does not measure only population or imports and does not mechanically double output. Thus, option A is correct.
Frequently asked questions
What is the correct answer to this question?
It measures price changes and does not show aspects such as income distribution
Why is this the correct answer?
The GDP deflator is a broad price index for domestically produced final goods and services; it measures the relationship between nominal and real GDP. Economic welfare is wider than prices or output. It also depends on income distribution, leisure, environmental quality, health, safety, and the quality of public services. The deflator does not measure only population or imports and does not mechanically double output. Thus, option A is correct.
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.
