Question

EXPLAIN HOW THE DISTRIBUTION OF GROSS DOMESTIC PRODUCT IS A LIMITATION IN TAKING GDP AS AN INDEX OF WELFARE

Answer 1

Distribution of GDP is an important determinant for taking GDP as an index of welfare. This is because it is possible that even with the rise in the real GDP, the welfare of the people might not increase. The increase in the GNP may be a result of increase in the income of only a few individuals. On the other hand, the majority of the people remain deprived of the benefits of the rise in the GDP. Thus, the rise in GDP may lead to false interpretation of the social welfare.