Which of the following statements is are correct 1 GDP can both underestimate as well as overestimat...........

Indian Economy (CDS) Growth and development

Which of the following statements is/are correct?

1. GDP can both underestimate as well as overestimate the actual welfare of the economy.

2. The standard of living is all elements that affect people’s happiness, whether these elements are bought and sold in the market or not.

Select the correct answer using the code given below:

1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

Correct Option: (c) Explanation: Statement 1 is correct: If we take GDP as a measure of the welfare of the economy we shall be overestimating or understating the actual welfare. Statement 2 is correct: GDP does not capture leisure, health, a cleaner environment, the possibilities created by new technology, or an increase in variety. Limitations of GDP calculation The fact that GDP per capita does not fully capture the broader idea of standard of living has led to a concern that the increases in GDP over time are illusory. It is theoretically possible that while GDP is rising, the standard of living could be falling if human health, environmental cleanliness, and other factors that are not included in GDP are worsening. Fortunately, this fear appears to be overstated. In some ways, the rise in GDP actually understates the actual rise in the standard of living. For example, rise in the Life expectancy, health, and the average level of education are not included in the GDP calculation. Topic: National Income Accounting Subtopic: GDP