Question

Which statement best describes the relationship between GDP and the welfare of a country?

Options

• Welfare depends only on the size of GDP.

• A fall in GDP always increases welfare.

• GDP is a perfect index of the welfare of a country.

• GDP is not a perfect index of the welfare of a country.

Answer 1

GDP is not a perfect index of the welfare of a country. Although GDP generally indicates income, welfare also depends on distribution, non-monetary exchanges, and externalities.