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Current Affairs·Easy

Consider the following statements about the measures of output of an economy: GDP at factor cost is a better indicator of growth in the economy than GDP at market price. The difference between GDP at factor cost and GDP at market price reflects the tax burden on the economy. Which of the statements given above is/correct?

Consider the following statements about the measures of output of an economy:

  1. GDP at factor cost is a better indicator of growth in the economy than GDP at market price.
  2. The difference between GDP at factor cost and GDP at market price reflects the tax burden on the economy.

Which of the statements given above is/correct?

Options

  1. a.

    1 only

  2. b.

    2 only

  3. c.

    Both 1 and 2

    Correct answer
  4. d.

    Neither 1 nor 2

Explanation

  • GDP at factor cost shows the monetary value of the goods and services in a particular year. When GDP at factor cost is factored for indirect taxes and subsidies, it gives rise to GDP at market prices. Thus, while GDP at market price can be increased by increasing taxes and reducing subsidies, GDP at factor cost provides for a better indicator for growth in the economy.
  • GDP at market prices = GDP at factor cost + indirect taxes – subsidies.

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