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Consider the following statements:
1. An increase in the GDP always leads to the welfare of people.
2. Negative externalities are not taken into account while calculating GDP
3. Non-monetary exchanges are not registered as part of economic activities in GDP calculation.
Which of the statements given above are correct?
- a)1 and 2 only
- b)2 and 3 only
- c)1 and 3 only
- d)1, 2 and 3
Correct answer is option 'B'. Can you explain this answer?
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Verified Answer
Consider the following statements:1. An increase in the GDP always lea...
- If the GDP of the country is rising, the welfare may not rise as a consequence. This is because the rise in GDP may be concentrated in the hands of very few individuals or firms. For the rest, the income may in fact have fallen. In such a case the welfare of the entire country cannot be said to have increased. the GDP is not taking into account such negative externalities. Therefore, if we take GDP as a measure of the welfare of the economy we shall be overestimating the actual welfare. This was an example of a negative externality. There can be cases of positive externalities as well. In such cases, GDP will underestimate the actual welfare of the economy. Hence statement 1 is not correct.
- Because of development, there will be pollution of rivers and air. This may cause harm to the people who use the water of the river. Hence their well-being will fall. Pollution may also kill fish or other organisms of the river on which fish survive. As a result, the fishermen of the river may be losing their livelihood. Such harmful effects that the project is inflicting on others, for which it will not bear any cost, are called externalities. In this case, the GDP is not taking into account such negative externalities. Hence statement 2 is correct.
- Many activities in an economy are not evaluated in monetary terms. For example, the domestic services women perform at home are not paid for. The exchanges which take place in the informal sector without the help of money are called barter exchanges. In barter exchanges, goods (or services) are directly exchanged against each other. But since money is not being used here, these exchanges are not registered as part of economic activity. Hence statement 3 is correct.
Most Upvoted Answer
Consider the following statements:1. An increase in the GDP always lea...
Statement Analysis:
1. An increase in the GDP always leads to the welfare of people.
- This statement is not entirely correct. While GDP growth is generally associated with improved living standards, it does not always directly translate to the welfare of all people. Factors such as income inequality, distribution of wealth, and access to basic necessities play a crucial role in determining the well-being of individuals.
2. Negative externalities are not taken into account while calculating GDP
- This statement is true. GDP calculations often do not consider negative externalities such as pollution, environmental degradation, and social costs. As a result, GDP may not accurately reflect the overall well-being of a society.
3. Non-monetary exchanges are not registered as part of economic activities in GDP calculation.
- This statement is also accurate. Non-monetary exchanges, such as volunteering, household work, and barter transactions, are not included in GDP calculations. This exclusion can lead to an incomplete picture of the economy's true productivity and well-being.
Overall Analysis:
- From the analysis above, it is evident that statements 2 and 3 are correct. While GDP growth is often associated with improved welfare, it is not a definitive indicator of overall well-being. Additionally, the exclusion of negative externalities and non-monetary exchanges in GDP calculations can impact the accuracy of economic assessments.
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Consider the following statements:1. An increase in the GDP always leads to the welfare of people.2. Negative externalities are not taken into account while calculating GDP3. Non-monetary exchanges are not registered as part of economic activities in GDP calculation.Which of the statements given above are correct?a)1 and 2 onlyb)2 and 3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'B'. Can you explain this answer?
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