Introduction to Business EconomicsMTP Apr 24Question 766 of 209
All Questions

Which of the following is a limitation of using GDP as a measure of economic well-being?

Options

AIt includes only monetary transactions.
BIt does not account for income distribution.
CIt considers both market and non-market activities.
DIt is not affected by inflation.
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Correct Answer

✅ Option b — It does not account for income distribution.

All Options:

  • AIt includes only monetary transactions.
  • BIt does not account for income distribution.
  • CIt considers both market and non-market activities.
  • DIt is not affected by inflation.

Detailed Solution & Explanation

To determine the limitation of using GDP as a measure of economic well-being, we need to consider what GDP actually measures. • GDP, or Gross Domestic Product, is the total value of all final goods and services produced within a country's borders over a specific time period. • It is often used as an indicator of a country's economic activity and growth, but it has its limitations when it comes to measuring economic well-being. • One major limitation is that GDP does not account for income distribution, meaning it does not consider how income is distributed among the population. This is why the correct answer is that it does not account for income distribution, as it only looks at the total value of goods and services produced, not how they are distributed among the people. • Options like "It includes only monetary transactions" are incorrect because while it is true that GDP only includes monetary transactions, this is not the limitation being referred to in this context. • Another incorrect option is "It considers both market and non-market activities", which is actually the opposite of what GDP does, as it primarily focuses on market activities.

About This Chapter: Introduction to Business Economics

Paper

Paper 4: Business Economics

Weightage

5%

Key Topics

Meaning, Scope, Price Mechanism

This chapter lays the groundwork for understanding Business Economics as a discipline. It covers the meaning, scope, and nature of economics — including key distinctions like Microeconomics vs Macroeconomics, Positive vs Normative economics, and the fundamental economic problem of scarcity. Students learn how businesses use economic principles for decision-making in a competitive marketplace.

View Official ICAI Syllabus

Exam Strategy Tip

Focus on definitions and distinctions between concepts. Questions often test whether you understand the difference between Micro and Macro, or Positive and Normative statements.

Related Comparison Tables

Microeconomics vs Macroeconomics: The Complete CA Foundation GuidePositive vs Normative Economics: Fact vs Opinion

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