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Increase in real GDP are often interpreted as increase in welfare. what are some problems with this interpretation?
Wiki User
∙ 13y ago
Increase in Real GDP is often interpreted as increase in welfare because Increase in Real GDP causes an increase in average interest rate in an economy by which Government expenditures (Government purchases and transfer payments) increases.
Problem with this interpretation is that the Real GDP increases due to increase in price level or money market by which real money supply decreases and money supply demanded exceeds real money supply. That means that people start demanding more money in order to full fill their requirements.
Wiki User
∙ 13y ago
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