Which of the following activity is a limitation to GDP as an indicator of welfare?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Services of a mother in helping her child to do homework.
GDP counts only what is bought and sold for money. Many useful activities are non-monetary exchanges, never paid for, so they are not recorded and GDP is underestimated. A mother helping her child with homework is one of them: her service adds to the family’s welfare, but GDP does not show it. Such a gap between well-being and the measured figure is a limitation of GDP as an indicator of welfare.
Why the other options are incorrect
Option (1) Teacher teaching in school. — Incorrect. A teacher is paid a salary, so the service is valued in money and counted in GDP.
Option (3) Construction of a road by municipal corporation. — Incorrect. The road is paid for by the corporation and enters GDP at its cost, as government spending on a capital good.
Option (4) Electricity production for providing street light. — Incorrect. Electricity is produced and sold for money, so its value is counted in GDP.
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.…” |