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Question
"Many goods and services which may contribute to welfare, but are not included in estimating Gross Domestic Product (GDP)."
Do you agree with the given statement? Give valid reason in support of your answer.
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Solution
Yes, I concur with the offered statement. Many commodities and services may contribute to welfare but are not counted in GDP. These are the following:
- Positive externalities: These are the benefits that an activity provides without expense. As an example, consider your neighbor's wonderful garden. Although it enhances neighborhood welfare, GDP does not take it into consideration.
- Non-monetary exchange: Some exchanges are free of charge, such as when a mother teaches her child. It raises welfare while without accounting for GDP.
- Transfer payments: These are one-sided payments that have no economic value. Nonetheless, they benefit human welfare. As an example, consider an old-age pension.
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