If the GDP of a country is rising, what will be its effect on welfare ?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Welfare of entire country may not increase
A rise in GDP means more goods and services, so it may seem to mean a rise in welfare. But the rise in GDP may go to very few people, while the income of the rest falls. So the welfare of the whole country may not increase.
GDP also leaves out work done without money, such as the domestic work of women, and harms such as pollution that nobody pays for.
Option (1) Welfare of entire country is also rising — Incorrect. This holds only if the gain is shared widely. GDP says nothing about how income is shared.
Option (2) Welfare of entire country is decreasing — Incorrect. A rise in GDP does not by itself make the whole country worse off. Welfare may rise or may not. GDP alone cannot tell.
Option (3) Welfare of entire country may not increase — Correct. GDP is not a sure index of welfare, for the reasons above.
Option (4) Welfare of entire country remains the same — Incorrect. This claims a certain result. The change in welfare depends on who gets the extra income, so it cannot be fixed in advance.
NCERT (2026-27): “2.5 GDP and Welfare Can the GDP of a country be taken as an index of the welfare of the people of that country? If a person has more income he or she can buy more goods and services and his or her material well-being improves.… So we may be tempted to treat higher level of GDP of a country as an index of greater well-being of the people of that country (to account for price changes, we may take the value of real GDP instead of nominal GDP). But there are at least three reasons why this may not be correct.… 1. Distribution of GDP – how uniform is it: 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.…” |