Higher gdp necessarily indicates higher welfare of the people .True or false for 2 economics
Answers
Answer :-
Higher GDP necessarily indicates higher welfare of the people. (False)
Explanation :-
Higher GDP doesn't indicates higher welfare of people because of following four reasons :-
1. Distribution of Income
When there is huge distribution of income then GDP doesn't make any sense of equal social welfare. Because the gulf between poor and rich is very deep. Only rich people can contribute in increment of GDP but poor people cannot.
2. Structure of GDP
Even after increment in GDP, the structure of GDP can't bealways supportive of welfare. Because if the production of defence of the country increase then GDP increases as well but it doesn't has any relation with the welfare of people.
3. Barter System
Barter system is still prevalent in the country. The records of barter system aren't available because these records are out currency records. The extent to which GDP doesn't collect the these records, isn't of people's welfare.
4. Externality
Externalities are the activities having some good or bad impact on people and for what no price and fines are to be paid. These impacts can't be counted in the calculation of GDP thus higher GDP doesn't always mean higher welfare of people.