Which of the following makes GDP an inappropriate index of welfare?

(A) Distribution of GDP.
(B) Externalities.
(C) Non-monetary exchanges.
(D) Price Index.

Choose the correct answer from the options given below:

(A), (B) and (C) only

The correct answer is Option (4) → (A), (B) and (C) only

GDP (Gross Domestic Product) is a measure of the total value of goods and services produced in an economy. However, it has several limitations as an index of economic welfare:

(A) Distribution of GDP – Yes. GDP does not reflect income inequality. A rise in GDP may benefit only a few, leaving the majority unaffected, which makes it a poor indicator of overall welfare.

(B) Externalities – Yes. GDP ignores externalities, such as environmental pollution or resource depletion. Negative externalities reduce welfare, even if GDP rises.

(C) Non-monetary exchanges – Yes.Activities like household work or barter transactions are not included in GDP, even though they contribute to welfare. 

(D) Price Index – No. Price index is used to adjust Nominal GDP to Real GDP and does not itself affect the welfare-measuring capability of GDP.