Assertion (A): GDP calculated in the standard manner may underestimate the productive activity of developing countries with many remote, underdeveloped regions.
Reason (R): Barter exchanges are not registered as part of economic activity because money is not used in them.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
Assertion (A): GDP calculated in the standard manner may underestimate the productive activity of developing countries with many remote, underdeveloped regions. — True. Where many regions are underdeveloped, GDP underestimates the activity that takes place.
Reason (R): Barter exchanges are not registered as part of economic activity because money is not used in them. — True. Without money, barter exchanges are not registered as economic activity.
Why R explains A?
Barter is common in remote, underdeveloped regions. Because no money changes hands, it is not recorded, so GDP misses this activity. That is the reason GDP is an underestimate there.
NCERT (2026-27): “2.5 GDP and Welfare … 2. 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. …” |