Question

GDP and Welfare
GDP is the sum total of the value of goods and services created within the geographical boundary of a country in a particular year. In order to compare the GDP figures and other macroeconomic variables of different countries or to compare the GDP figures of the same country at different points of time, we take the help of real GDP instead of relying on current market prices. The ratio of nominal GDP to real GDP gives us an idea of how prices have moved from the base year to the current year. The Consumer Price Index (CPI) and Wholesale Price Index (WPI) are the other important ways to measure change of prices in an economy.

GDP gets distributed among the people as incomes and may treat higher level of GDP of a country as an index of greater well-being of the people of that country. But it may be incorrect to treat GDP as an index of the welfare of the country based on three reasons. Firstly, the distribution of GDP is not uniform, secondly, non-monetary exchanges are not accounted as part of economic activity and lastly, GDP does not take into account externalities.

The unregistered activity i.e., the domestic services women perform at home is example of which of the following?

• A. GDP
• B. Positive Externalities.
• C. Negative Externalities.
• D. Non-monetary Exchanges.

Hint:

Unpaid housework has no money exchange, so GDP leaves it out: a non-monetary exchange.

Answer 1

The Correct Option is D

Step 1: Understand the question
The question asks which concept covers unregistered work, such as housework done by women at home. No money is paid and no market sale happens in such work.

Step 2: Recall the passage
The passage lists three reasons why GDP is not a good index of welfare. One of them is that non-monetary exchanges are not accounted as part of economic activity. Housework is a standard example of this.

Step 3: Check option 1 (GDP)
GDP counts only goods and services that are bought and sold in the market or have an imputed value. Unpaid home services are left out, so they are not an example of GDP. Option 1 is WRONG.

Step 4: Check option 2 (Positive externalities)
A positive externality is a benefit that reaches a third party without payment, such as a neighbour enjoying your garden. Household work is not described this way. Option 2 is WRONG.

Step 5: Check option 3 (Negative externalities)
A negative externality is a cost imposed on others, such as pollution. Housework does not impose such a cost. Option 3 is WRONG.

Step 6: Check option 4 (Non-monetary exchanges)
These are activities done without payment or a market exchange, so they are not recorded in GDP. Domestic services done at home fit exactly. Option 4 is CORRECT.

Final Answer:
Unregistered domestic services are an example of non-monetary exchanges. This is option 4. \[ \boxed{\text{4. Non-monetary Exchanges}} \]