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

Concept:
GDP measures the market value of final goods and services produced within the domestic territory of a country. However, GDP is not always a perfect measure of welfare because many welfare-related aspects are not properly reflected in GDP.
Step 1: Check externalities.
Externalities are positive or negative effects of production or consumption on others. For example, pollution reduces welfare but may not be deducted properly from GDP. So: \[ A = \text{Correct} \]
Step 2: Check distribution of GDP.
GDP may increase, but income may be concentrated in the hands of a few people. If distribution is unequal, welfare may not improve for everyone. So: \[ B = \text{Correct} \]
Step 3: Check monetary exchanges.
Monetary exchanges are generally included in GDP if they are related to final goods and services. So, monetary exchanges are not a reason for GDP being an incomplete welfare measure. Thus: \[ C = \text{Incorrect} \]
Step 4: Check non-monetary exchanges.
Many useful services are not sold in the market. For example, household work done by family members is not counted in GDP. So: \[ D = \text{Correct} \]
Step 5: Final conclusion.
The correct reasons are: \[ A,\ B,\ D \] Hence: \[ \boxed{\text{(A) A, B and D only}} \]