Write down some of the limitations of using GDP as an index of welfare of a country.
Limitations of using GDP as an indicator are as follows:
(i) Nonmonetary exchanges
GDP measures the goods and services produced in an economy during a particular period of time. However, it does not take into account those transactions that do not come under monetary terms. In less developed countries there are non-monetary exchanges, particularly in rural areas. Hence, these transactions remain outside the domain of GDP. The household sector and voluntary sectors get ignored in GDP.
(ii) Inflation
GDP does not take into account the level of prices in a country. Because of inflation, the cost of living increases leading to a decrease in the standard of living. The loss of welfare due to this decrease is not taken into consideration by GDP as an index of welfare.
(iii) Externalities
Increase in the national income is associated with increased levels of pollution, accidents, disasters, shortage and depletion of natural resources, etc. These factors affect human health and lead to ecological degradation. GDP fails to consider the costs or valuations of such factors.
(iv) Income pattern
GDP disregards the income distribution pattern. The increase in aggregate national income may be a result of the increase in income of a few individuals. Thus, this may lead to false interpretation of social welfare.
(v) Welfare
GDP ignores the welfare component as the goods and services produced may or may not add to the welfare of society. For example, the production of goods, like guns narcotic drugs, high-end luxurious goods increase the monetary value of production, but they do not add to the welfare of the majority of the population.
Differentiate between devaluation and depreciation.
What is a barter system? What are its drawbacks?
Explain the relation between government deficit and government debt.
From the following data, calculate Personal Income and Personal Disposable Income.
Rs (crore)
(a) Net Domestic Product at factor cost 8,000
(b) Net Factor Income from abroad 200
(c) Undisbursed Profit 1,000
(d) Corporate Tax 500
(e) Interest Received by Households 1,500
(f) Interest Paid by Households 1,200
(g) Transfer Income 300
(h) Personal Tax 500
Why should the aggregate final expenditure of an economy be equal to the aggregate factor payments? Explain.
Give the relationship between the revenue deficit and the fiscal deficit.
Discuss the issue of deficit reduction.
Are fiscal deficits inflationary?
What is the difference between ex ante investment and ex post investment?
Suppose C = 40 + 0.8Y D, T = 50, I = 60, G = 40, X = 90, M = 50 + 0.05Y
(a) Find equilibrium income. (b) Find the net export balance at equilibrium income (c) What happens to equilibrium income and the net export balance when the government purchases increase from 40 and 50?
What is money multiplier? What determines the value of this multiplier?
What are the important features of a capitalist economy?
What is a barter system? What are its drawbacks?
In the above example, if exports change to X = 100, find the change in equilibrium income and the net export balance.
What is High Powered Money?
Distinguish between revenue expenditure and capital expenditure.
Are fiscal deficits inflationary?
What is a ‘legal tender’? What is ‘fiat money’?
The value of the nominal GNP of an economy was Rs 2,500 crores in a particular year. The value of GNP of that country during the same year, evaluated at the prices of same base year, was Rs 3,000 crores. Calculate the value of the GNP deflator of the year in percentage terms. Has the price level risen between the base year and the year under consideration?
Suppose the exchange rate between the Rupee and the dollar was Rs. 30=1$ in the year 2010. Suppose the prices have doubled in India over 20 years while they have remained fixed in USA. What, according to the purchasing power parity theory will be the exchange rate between dollar and rupee in the year 2030.