Question

Which one of the following is an incorrect statement in the context of Gross Domestic Product (GDP)?

• A. GDP does not measure the sustainability of growth.
• B. GDP helps to understand whether economy is growing or contracting.
• C. GDP reflects annual trends of inflation and prices of commodities.
• D. GDP helps to understand shift in the annual changes in the country's economy.

Answer 1

The Correct Option is C

The incorrect statement in the context of Gross Domestic Product (GDP) is (3) GDP reflects annual trends of inflation and prices of commodities.

Additional Context:

• About GDP:
  • Measures total monetary value of final goods/services produced
  • Calculated at current prices (nominal GDP) or constant prices (real GDP)
• Why (3) is incorrect:
  • GDP measures production value, not price levels
  • Inflation is measured separately by indices (CPI, WPI)
  • Commodity price trends require specific market analysis
• Correct statements analysis:
  • (1): GDP growth may deplete natural resources unsustainably
  • (2): GDP growth rate indicates economic expansion/contraction
  • (4): Year-on-year GDP comparisons show economic shifts
• GDP Limitations:
  • Excludes non-market activities (household work, volunteerism)
  • Doesn't account for income inequality
  • Omits environmental costs of production
• Complementary Indicators:
  • GNP (Gross National Product): Includes net foreign income
  • NDP (Net Domestic Product): Deducts depreciation
  • HDI (Human Development Index): Adds health/education metrics

Correct Answer: (3) GDP reflects annual trends of inflation and prices of commodities.