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?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Non-monetary Exchanges.
A woman who cooks, cleans and cares for her family produces real services, but no money changes hands, so the domestic services women perform at home stay unregistered as economic activity. Such non-monetary exchanges, which also include barter in the informal sector, are left out of GDP. GDP therefore underestimates the real activity of the economy, one reason it is an imperfect index of welfare.
Why the other options are incorrect
Option (1) GDP — Incorrect. GDP is the money value of the final goods and services produced in the country; unpaid domestic work is the very thing it leaves out.
Option (2) Positive Externalities. — Incorrect. A positive externality is a benefit that one activity gives to others without being paid for it, such as a garden that others enjoy; it is about effects on third parties, not about work done for one’s own household.
Option (3) Negative Externalities. — Incorrect. A negative externality is a harm one activity causes to others without paying for it, such as pollution from a factory; domestic services harm no one.
Note: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 24-05 S1 | 14-05 S1* | – | – | – |
* A similar question.
NCERT (2025-26): “2.5 GDP and Welfare … Non-monetary exchanges: Many activities in an economy are not evaluated in monetary terms. For example, the domestic services women perform at home are not paid for. The exchanges which take place in the informal sector without the help of money are called barter exchanges. In barter exchanges, goods (or services) are directly exchanged against each other. But since money is not being used here, these exchanges are not registered as part of economic activity. In developing countries, where many remote regions are underdeveloped, these kinds of exchanges do take place, but they are generally not counted in the GDPs of these countries. This is a case of underestimation of GDP.…” |