Read the below statements marked as Assertion (A) and Reason (R). Mark the correct option: Assertion (A): GDP doesn’t really tell the whole story when it comes to how well people in a country are actually doing. Reason (R): That’s mainly because it doesn’t take into account stuff like wear and tear of machines, pollution, or even how the money is divided among people.

Correct — A. A is true: GDP adds up the value of goods and services produced, which is not the same as how well people live.

R gives the reasons:
GDP is gross, so wear and tear of machines (depreciation) is not subtracted.
Harm such as pollution is an externality with no market price.
GDP says nothing about how income is divided.

These gaps are what make A true, so R explains A: option (a).

Why the others are wrong

• (b)
  Both A and R are true, but R is not the correct explanation of A. — R is not a side fact. Depreciation, externalities and distribution are the very reasons GDP misreads welfare, so R explains A directly.
• (c)
  A is true, but R is false. — R is true. NCERT's example is a refinery whose output counts in GDP while the river it pollutes harms people and fishermen downstream, a cost GDP never subtracts.
• (d)
  A is false, but R is true. — A is true: NCERT gives at least three reasons a higher GDP may not mean greater welfare, starting with how evenly it is distributed.

NCERT's Class XII macroeconomics text asks whether GDP can be taken as an index of welfare, and gives at least three reasons it cannot.

Distribution: GDP can rise while most people's incomes fall.
Non-monetary exchanges: unpaid domestic work and barter are not counted.
Externalities: a refinery's output is counted, but the harm its pollution does downstream is not.

Depreciation is a separate adjustment: NDP = GDP − depreciation.

Key facts

• NDP = GDP − depreciation, and NNP = GNP − depreciation.
• NCERT's three reasons GDP is a poor welfare index are distribution, non-monetary exchanges and externalities.
• Negative externalities such as pollution make GDP overstate welfare, and positive externalities make it understate welfare.
• Unpaid domestic work and barter exchanges are left out of GDP, so it is underestimated.

Common traps

• Choosing (b) because the items in R look like a random list: each is a reason GDP misstates welfare.
• Thinking GDP already subtracts depreciation: it is subtracted only to get NDP.

No directly related past PYQ was found.