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Question
What is the effect of positive externalities on the measurement of welfare by GDP?
Options
GDP underestimates the actual welfare of the economy.
GDP overestimates the actual welfare of the economy.
GDP becomes a perfect measure of welfare.
GDP records all unpaid benefits automatically.
MCQ
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Solution
Positive externalities increase welfare, but their benefits are ignored by GDP. As a result, GDP underestimates the actual welfare of the economy.
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