Question

It may be incorrect to treat GDP as an index of a country's welfare for the following reasons: A. Externalities
B. Distribution of GDP is not uniform
C. Monetary exchanges
D. Non-monetary exchanges

• A. A, B and D only
• B. A, C and D only
• C. A, B, C and D
• D. B, C and D only

Hint:

GDP is not a perfect welfare index because it ignores externalities, inequality in distribution, and many non-monetary activities.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
While GDP measures the total value of production, it often fails to accurately reflect the standard of living or general well-being of the population.
Step 2: Detailed Explanation:
The limitations of GDP as a welfare indicator include:
1. Externalities (A): GDP does not account for environmental pollution (negative) or benefits like public knowledge (positive) that affect welfare.
2. Distribution of GDP (B): If a few people hold most of the income, a high GDP does not mean the average person is well-off.
3. Non-monetary exchanges (D): Services like kitchen gardening or household chores are not sold in markets and thus excluded from GDP, despite contributing to welfare.
4. Why C is wrong: GDP measures monetary exchanges. The presence of monetary exchanges is why GDP is calculated, not a reason why it is a poor index. The exclusion of non-monetary exchanges is the actual problem.
Step 3: Final Answer:
Statements A, B, and D represent the specific shortcomings of GDP as a welfare index.
Therefore, option (A) is correct.