(i) “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. [3] (ii) With suitable examples, distinguish between final goods and intermediate goods. [3] (i) Using a suitable numerical example, distinguish between Real Gross Domestic Product (GDP) and Nominal Gross Domestic Product (GDP). [4] (ii) State the meaning of ‘normal resident’ of a country. [2]

Question

Accepted Answer

Yes, I agree. Many goods and services contribute to welfare but are excluded from GDP estimation:

1. Non-market transactions: Services of housewife, kitchen gardening, parental teaching. These are difficult to measure in market value.
2. Externalities: Positive externalities like vaccination benefits, negative externalities like pollution harms. These are not captured in market prices.
3. Leisure: Increased leisure improves welfare but is not produced for sale.
4. Quality improvements: Better quality goods at same price increase welfare but may not raise GDP.
5. Composition of GDP: Higher GDP from war goods does not improve welfare.

These omissions mean GDP understates true welfare. The concept of Green GNP attempts to adjust for environmental degradation and resource depletion.